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                                                        Calendar No. 90
105th Congress                                                   Report
                                 SENATE

 1st Session                                                     105-32
_______________________________________________________________________


 
                  PRODUCT LIABILITY REFORM ACT OF 1997
                                _______

                              R E P O R T

                                 OF THE

           COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                                   ON

                                 S. 648

                             together with

                             MINORITY VIEWS



                 June 19, 1997.--Ordered to be printed


       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       one hundred fifth congress

                             first session

                     JOHN McCAIN, Arizona, Chairman

TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington             WENDELL H. FORD, Kentucky
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas          Virginia
OLYMPIA SNOWE, Maine                 JOHN F. KERRY, Massachusetts
JOHN ASHCROFT, Missouri              JOHN B. BREAUX, Louisiana
BILL FRIST, Tennessee                RICHARD H. BRYAN, Nevada
SPENCER ABRAHAM, Michigan            BYRON L. DORGAN, North Dakota
SAM BROWNBACK, Kansas                RON WYDEN, Oregon

                       John Raidt, Staff Director

     Ivan A. Schlager, Democratic Chief Counsel and Staff Director



                                                        Calendar No. 90
105th Congress                                                   Report
                                 SENATE

 1st Session                                                     105-32
_______________________________________________________________________


                  PRODUCT LIABILITY REFORM ACT OF 1997
                                _______

                 June 19, 1997.--Ordered to be printed

_______________________________________________________________________


       Mr. McCain, from the Committee on Commerce, Science, and 
                Transportation, submitted the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                         [To accompany S. 648]

    The Committee on Commerce, Science, and Transportation, to 
which was referred the bill (S. 648) ``A Bill to establish 
legal standards and procedures for product liability 
litigation, and for other purposes'', having considered the 
same, reports favorably thereon without amendment and 
recommends that the bill do pass.

                            PURPOSE OF BILL

  The bill, S. 648, creates certain standards of product 
liability law that are to be applied uniformly throughout the 
United States.
  The present system in the United States for resolving product 
liability disputes and compensating those injured by defective 
products is costly, slow, inequitable, and unpredictable. Such 
a system does not benefit manufacturers, product sellers, or 
injured persons. The system's high transaction costs exceed 
compensation paid to victims. Those transaction costs are 
passed on to consumers through higher product prices. The 
system's unpredictability and inefficiency have stifled 
innovation, kept beneficial products off the market, and have 
handicapped American firms as they compete in the global 
economy.
  S. 648 addresses these problems through several changes to 
existing product liability law. This new law would apply to all 
product liability actions in state and federal courts. These 
changes are balanced and limited and are intended to reduce 
transaction costs, provide greater certainty as to the rights 
and responsibilities of all parties involved in product 
liability disputes, encourage innovation, increase the 
competitiveness of U.S. firms, reduce burdens on interstate 
commerce, and safeguard due process rights.
  In Title II, the bill seeks to avoid a public health crisis 
by specifically addressing an emerging problem concerning the 
supply of medical devices. The supply of raw materials and 
component parts used in medical devices--commonly referred to 
as biomaterials--is jeopardized because suppliers of those 
biomaterials are pulled into product liability suits primarily 
targeted at the manufacturer of the medical device. Although 
courts are not finding suppliers of biomaterials liable, the 
costs of defending these suits are far greater than the profits 
from supplying the biomaterials for use in medical devices. 
Suppliers of biomaterials are, therefore, refusing to supply 
raw materials and component parts to the manufacturers of 
medical devices. As a result the supply of life-saving and 
life-enhancing medical devices is jeopardized. To address this 
important public health problem, S. 648 would allow the 
suppliers of raw materials and component parts used in medical 
implants to obtain dismissal from certain tort actions without 
extensive discovery or other legal costs. The provision would 
not affect the ability of claimants to sue manufacturers or 
sellers of medical implants and it would not apply to lawsuits 
involving silicone gel breast implants.

                          BACKGROUND AND NEED

                              INTRODUCTION

  Although product liability is a matter traditionally left to 
state law, the current morass of product liability laws is a 
problem of national concern that requires Congressional action. 
The current system of compensating people injured by defective 
products is costly, slow, inequitable, and unpredictable.
  Many consumers who are injured by defective products and 
deserving of compensation are unable to recover damages or must 
wait years for recovery. They, like manufacturers and product 
sellers, are thrust into a product liability litigation system 
in which identical cases can produce startlingly different 
results. Moreover, severely injured victims tend to receive far 
less than their actual economic losses, while those with minor 
injuries often are overcompensated.
  Inefficiency and unpredictability have many negative effects. 
The unpredictable patchwork of state laws has had a chilling 
effect on the introduction of new products to market. The 
current U.S. product liability system also damages our 
competitive position in world markets because the excessive 
costs of the system result in higher prices for American 
products.
  The present system adversely affects manufacturers, product 
sellers, consumers, and individuals injured by products. Reform 
by the states cannot fully address the problems with the 
current product liability system. Reform at the federal level 
is urgently needed.

         I. Problems with the present product liability system

  The existing system does not provide an efficient and 
equitable means of resolving claims involving defective 
products.

               A. Costs are high and continue to escalate

  The costs of the product liability system have increased 
substantially in recent decades. The editors of The Liability 
Maze, a book published by the Brookings Institution in 1991, 
noted that ``[r]egardless of the trends in tort verdicts, most 
studies in this area have concluded that, after adjusting for 
inflation and population, liability costs have risen 
dramatically in the last thirty years, and most especially in 
the last decade.'' \1\ Increases in awards in such cases have 
been much higher than corresponding increases in wages and 
inflation.\2\ Increased product liability costs are reflected 
in dramatic increases in liability insurance costs. Over the 
last forty years, general liability insurance costs have 
increased at over four times the rate of growth of the national 
economy.\3\
---------------------------------------------------------------------------
    \1\ Peter W. Huber and Robert E. Litan, eds., The Brookings 
Institution, The Liability Maze 3 (1991). [Hereinafter The Liability 
Maze].
    \2\ P. Weiler, K. Abraham, R. Rabin, D. Rosenberg, A. Schwartz, 
W.K. Viscusi, Enterprise Responsibility for Personal Injury, American 
Law Institute, Reporters' Study, Vol. I, at 270-71 [hereinafter ALI 
Reporters' Study].
    \3\ Id. at 60.
---------------------------------------------------------------------------
  The transaction costs associated with the present product 
liability system--the costs of litigation, court proceedings, 
and attorneys' fees--are enormous. Today, plaintiff and defense 
lawyers collect as much from the system as injured persons do 
and most of the money paid out by manufacturers never reaches 
injured persons.\4\ A study by the Insurance Services Office 
(ISO) of closed claims in 1992 indicated that for every $10 
paid to claimants by insurance companies in product liability 
cases, another $7 is paid for lawyers and other defense 
costs.\5\ If the contingent fees of plaintiffs' attorneys are 
factored in, lawyers' fees account for 61 percent of the funds 
expended on product liability claims.
---------------------------------------------------------------------------
    \4\ Testimony of the Honorable Robert A. Mosbacher, Secretary, U.S. 
Department of Commerce, Before the Consumer Subcommittee of the Senate 
Committee on Commerce, Science, and Transportation, S. Hrg. 101-743 at 
258, April 5, 1990 (hereinafter April 5, 1990 hearing).
    \5\ Insurance Services Office Product Liability Closed Claim 
Survey, A Technical Analysis of Survey Results (1992).
---------------------------------------------------------------------------
  A 1986 study by the Rand Institute for Civil Justice showed 
that the annual overall transaction costs of the U.S. tort 
system exceed compensation to plaintiffs. The Rand study found 
that in 1985, net compensation totaled $13 billion to $15 
billion, but the transaction costs--including plaintiffs' 
attorneys' fees, defense legal fees, public expenditures, and 
the time of the litigants--were between $15 billion and $19 
billion.\6\ A study conducted by the insurance industry in 
1989--the Tillinghast study--estimated the current overall 
annual cost of the U.S. tort system at a staggering $117 
billion.\7\
---------------------------------------------------------------------------
    \6\ Testimony of James S. Kakalik, Ph.D., The Institute for Civil 
Justice of the Rand Corporation, before the Subcommittee on Trade, 
Productivity, and Economic Growth of the Joint Economic Committee, July 
29, 1986, S. Hrg. 99-1090. The same conclusion was reached in a study 
done by an actuarial consulting firm for members of the insurance 
industry. The study found that in 1984, 63 percent of the gross insured 
costs of the United States tort system consisted of payments to 
claimants. Robert W. Sturgis, ``The Cost of the U.S. Tort System,'' 
Tillinghast, Nelson, and Warren, Inc. 16 (November 1985). If this is 
reduced by one-third to account for plaintiffs' attorneys' fees, only 
42 percent of the costs remain to compensate the injured. Dr. Kakalik, 
author of the Rand study, explained in his testimony that Sturgis' 
estimate of transaction costs ``is higher than ours because it includes 
the cost of insurance premiums that cover claims, lawsuits, and the 
operation of the insurance system. We only report on compensation and 
costs directly associated with tort lawsuits.''
    \7\ Tillinghast, Perrins-Tower Group. Tort Cost Trends: An 
International Perspective 16 (December 1989).
---------------------------------------------------------------------------
  The U.S. tort system is by far the world's most costly tort 
system.\8\ Consumers pay higher prices as a result. Neither 
plaintiffs nor defendants benefit from the rapidly increasing 
and excessive costs of the present system for resolving product 
liability disputes.
---------------------------------------------------------------------------
    \8\ Id.
---------------------------------------------------------------------------

                                B. Delay

  Product liability suits take a very long time to process. 
This delay places at a disadvantage those injured by faulty 
products and adds to the expense of the civil justice system.
  One insurance industry study found those with the most severe 
injuries are forced to wait the longest for compensation. This 
study found that, in cases where payment exceeded $100,000, 
21.6 percent of claimants waited more than five years for 
payment. Only 2.1 percent were paid within a year of reporting 
their injury, and 62.6 percent took more than three years to be 
paid.\9\
---------------------------------------------------------------------------
    \9\ Alliance of American Insurers Survey of Large-Loss Product 
Liability Claims 4 (1980).
---------------------------------------------------------------------------
  A GAO report found that, in the five states studied, on 
average product liability cases took two and one-half years to 
move from filing to trial court verdict.\10\ One case studied 
by GAO took about nine and one-half years to move through the 
court system.\11\
---------------------------------------------------------------------------
    \10\ U.S. General Accounting Office, Report to the chairman, 
Subcommittee on Commerce, House Committee on Energy and Commerce, 
``Product Liability: Verdicts and Case Resolution in Five States'' 49 
(September 1989) [hereinafter GAO Report].
    \11\ Id.
---------------------------------------------------------------------------
  Most product liability cases are settled before trial, but 
even these cases suffer from delay. One plaintiff's attorney 
explained that ``most settlement negotiations get serious only 
a week or so before trial is scheduled to begin.'' This timing 
has become so ingrained in the system that ``each week the 
[lawyer's] firm projects cash flow by estimating the settlement 
value of the cases set for trial the following week.'' \12\
---------------------------------------------------------------------------
    \12\ Wayne E. Green, A Lawyer Faces Risks In Deciding to Take On 
Costly Damage Suits, Wall St. J., May 23, 1986 at 12.
---------------------------------------------------------------------------
  Delay can result in undercompensation of victims. Many injury 
victims are forced to settle their claims for less than their 
full losses so they can obtain compensation more quickly. These 
individuals are often forced into this decision because they 
have inadequate resources to pay for their medical and 
rehabilitation expenses. This dynamic is most evident where 
severe injuries are involved.\13\
---------------------------------------------------------------------------
    \13\ See Jeffrey O'Connell, A `Neo No-Fault' Contract in Lieu of 
Tort: Preaccident Guarantees of Postaccident Settlement Offers, 73 
Calif. L. Rev. 898, 901-902 (1985).
---------------------------------------------------------------------------

                      C. Inequitable Compensation

  The present product liability system also is unfair because 
it fails to compensate those injured in proportion to their 
losses. Numerous studies have found the tort system grossly 
overpays people with small losses, while underpaying people 
with the most serious losses.
  An early ISO product liability study found injured plaintiffs 
with losses between $1 and $1,000 receive, on the average, 859 
percent of their losses, while those with losses of over $1 
million receive, on the average, 15 percent of their losses 
(before paying their attorneys' fees).\14\ In general, the 
study found compensation exceeded economic loss when losses 
were below $100,000, but compensation dropped dramatically 
below actual economic loss when the claimant's loss exceeded 
$100,000.\15\
---------------------------------------------------------------------------
    \14\ Insurance Services Office Product Liability Closed Claim 
Survey, A Technical Analysis of Survey Results (1977) at 49.
    \15\ d. at 383.
---------------------------------------------------------------------------

                          D. Unpredictability

  Consumers, manufacturers, and product sellers are trapped in 
a product liability litigation system that has been called a 
lottery. Identical cases can produce startlingly different 
results.
  A principle cause of excessive uncertainty is the diversity 
in legal standards applied in different jurisdictions.\16\ 
Professor M. Stuart Madden of Pace University School of Law, in 
his testimony before the Subcommittee on April 4, 1995 
identified the ``cacophony of conflicting state liability and 
damage rules'' as the primary cause of this confounding 
unpredictability.\17\ Professor Madden explained:
---------------------------------------------------------------------------
    \16\ See, e.g., S. Rept. 98-476, pp.3-4; Calabresi and Klevorick, 
Four Tests for Liability in Torts, 14 J. Leg. Stud. 585, 585-6 (1985).
    \17\ Testimony of Professor M. Stuart Madden, hearing of the 
Subcommittee on Consumer Affairs, Foreign Commerce and Tourism, Senate 
Committee on Commerce, Science, and Transportation, April 4, 1995 
(hereinafter April 4, 1995 hearing), S.Hrg. 104-335 at 364.

          While analyzing the array of diverse state laws is 
        festive for academics, it is costly to businesses and 
        to the public. Studies show that insurance costs in the 
        United States are twenty times greater than they are in 
        Europe, and fifteen times greater than in Japan.\18\
---------------------------------------------------------------------------
    \18\ Id. at 364.

    Art Kroetch, Chairman of Scotchman Industries, a small 
business that manufactures machine tools in South Dakota, 
indicated in his testimony before the Subcommittee on April 4, 
1995 that the uncertainty concerning both the applicable 
product liability rules and the resultant exposure business 
faces is reflected in erratic product liability insurance 
rates. Mr. Kroetch explained that insurers ``are unable to 
accurately predict potential liability due to the disparity in 
state laws, unpredictability of where the product will be 
located initially, and later where it is sold and resold as 
used equipment.'' Mr. Kroetch indicated that when insurance 
companies set their rates, they must account for the worst case 
scenario and, as a result, insurance rates are sometimes so 
high that affordable coverage cannot be obtained.\19\
---------------------------------------------------------------------------
    \19\ Testimony of Art Kroetch, April 4, 1995 hearing, S.Hrg. 104-
435 at 351.
---------------------------------------------------------------------------
  The system's unpredictability particularly affects 
settlements as negotiations are ``sabotaged'' by the lack of 
clear standards.\20\ For example, uncertainty over the 
liability standards for punitive damages makes it difficult to 
negotiate sensibly where punitive damages are alleged.\21\
---------------------------------------------------------------------------
    \20\ Twerski, A Moderate and Restrained Product Liability Bill: 
Targeting the Crisis Areas for Resolution, 18 U. Mich. J. of L. Ref. 
575, 612 (1985).
    \21\ Testimony of Professor Aaron Twerski, Hearing of the Consumer 
Subcommittee of the Senate Committee on Commerce, Science, and 
Transportation, September 19, 1991 (hereafter September 19, 1991 
hearing), S. Hrg. 102-727 at 104 (1991). See Twerski, A Moderate and 
Restrained Federal Product Liability Bill: Targeting the Crisis Areas 
for Resolution, supra, at 612.
---------------------------------------------------------------------------
  Greater predictability and uniformity will benefit all 
parties in product liability disputes. Warren W. Eginton, a 
federal judge and a product liability expert, testified at the 
Subcommittee's hearing on February 22, 1990 that:

        the more uniformity can be accomplished . . . the more 
        quickly the litigation will flow and the lighter the 
        economic burden on all parties involved. Certainly the 
        task of the judge and juries in understanding the 
        problems and the rules of law to be applied to those 
        problems will be greatly simplified by uniformity.\22\
---------------------------------------------------------------------------
    \22\ Testimony of the Honorable Warren W. Eginton, U.S. District 
Judge, District of Connecticut, S. Hrg. 101-743 at 180 (1990).

    The uncertainty in the present system is a serious problem 
for both plaintiffs and defendants. Plaintiffs need faster, 
more certain recovery that fully compensates them for their 
real losses. Defendants need greater certainty as to the scope 
of their liability.

      II. Burdens from a product liability system that has failed

  Our nation's inefficient and inequitable product liability 
system burdens consumers with higher prices and deprives them 
of needed products. It ladens businesses with unnecessary costs 
that injure their international competitiveness and sacrifices 
quality American jobs. An inefficient and inequitable product 
liability system does not foster safety.

   A. Consumers pay higher prices and are confused about their rights

  William Fry, Executive Director of HALT, indicated in his 
testimony before the Subcommittee on April 3, 1995 that 
ordinary consumers would benefit from product liability reform. 
HALT is a ``nonprofit organization of 70,000 individuals 
devoted to reforming the legal system so that it works better 
for the average citizen.'' \23\
---------------------------------------------------------------------------
    \23\ Testimony of William Fry, hearing of the Subcommittee on 
Consumer Affairs, Foreign Commerce and Tourism, Senate Committee on 
Commerce, Science and Transportation, April 3, 1995 (hereinafter April 
3, 1995 hearing), S.Hrg. 104-435 at 83.
---------------------------------------------------------------------------
  Mr. Fry indicated the diversity of product liability laws 
applied by different states frustrates consumers because ``they 
cannot know their basic rights and options, and . . . they must 
consult a lawyer to find them out.'' \24\ HALT supports a 
federal product liability law to give consumers consistency and 
predictability, and to enable them to learn and understand 
their rights.
---------------------------------------------------------------------------
    \24\ Id. at 85.
---------------------------------------------------------------------------
  Consumers must ultimately bear, through higher prices, the 
excessive costs of our product liability system. Mr. Fry 
testified, for example, that excessive punitive damages 
``penalties are harmful to business and to consumers of 
products when price reflects the risk of such penalties.'' \25\ 
He also noted that ``our members are sensitive to the pass-
through impact of punitive damages, or the fear of them, to 
consumers in the form of higher prices or products not getting 
to market.'' \26\
---------------------------------------------------------------------------
    \25\ Id. at 88.
    \26\ Id. at 89.
---------------------------------------------------------------------------

   B. Women's health research and products: A case study of a broken 
                                 system

  In its many hearings over the years, the Committee has often 
received testimony about how the existing product liability 
system stifles innovation and keeps beneficial products off the 
market. A compelling example is the testimony received by the 
Subcommittee on April 4, 1995 from Ms. Phyllis Greenberger, the 
Executive Director of the Society for the Advancement of 
Women's Health Research. The Society is a ``non-profit, non-
partisan organization committed to improving the health of 
women through research.'' \27\
---------------------------------------------------------------------------
    \27\ Testimony of Phyllis Greenberger, April 4, 1995 hearing, 
S.Hrg. 104-435 at 210.
---------------------------------------------------------------------------
  Ms. Greenberger testified that the Society believes ``the 
current liability climate is preventing women from receiving 
the full benefits that science and medicine can provide.'' She 
noted ``there is evidence that maintaining the current 
liability system harms the advancement of women's health 
research.'' This harm occurs because ``[l]iability concerns are 
stifling research and development of products for women.''
  Ms. Greenberger stated that ``[c]ontraceptive development in 
the U.S. provides an excellent example of how the threat of 
litigation can devastate an entire industry.'' She noted it is 
litigation concerns, not a lack of demand, that has reduced the 
number of U.S. companies doing contraceptive research from 13 
to 2. Ms. Greenberger stated that a ``recent report of the 
Institute of Medicine attributed this decline to the 
unpredictable nature of litigation combined with the enormous 
cost and limited availability of liability insurance.''
  It is not just research that is affected. ``Liability 
concerns are keeping products, which have already been 
developed, off the market despite a known therapeutic need.'' 
Ms. Greenberger gave several examples of beneficial products 
which are not being marketed, including Bendectin, the only 
anti-nausea medication ever approved by the Food and Drug 
Administration for use during pregnancy.
  To understand these unfortunate developments, Ms. Greenberger 
advised that if one ``[v]iews the legal landscape from the eyes 
of a manufacturer, one sees a foreboding terrain.'' She notes 
that ``[i]t is important to remember that the very nature of 
drugs and medical devices means that they are not risk free.'' 
Consequently, ``[a]ny drug taken over long periods of time by 
large populations will undoubtedly result in problems for a 
certain number of people.'' Ms. Greenberger stressed that 
``unintended adverse reactions in a few should not create a 
threat of liability so great as to disadvantage the many who 
benefit.''
  Ms. Greenberger identified the true risk to such beneficial 
products when she noted they ``present an enticing arena for 
lawyers who have created an industry out of cultivating 
massive, sensationalized lawsuits often based on the experience 
of the few who experienced legitimate problems.'' In addition, 
Ms. Greenberger commented that her organization ``is concerned 
that opponents to reform are using women as their strategy to 
block change'' in product liability.\28\
---------------------------------------------------------------------------
    \28\ All quotations in the preceding paragraphs are from 
Greenberger's testimony, April 4, 1995 hearing, S.Hrg. 104-435 at 211-
212.
---------------------------------------------------------------------------

   C. Innovation is stifled and beneficial products are kept off the 
                                 market

  The negative effect of our current product liability system 
on the economy was clearly demonstrated in a survey of over 
2,000 CEOs conducted by the Conference Board in 1988. 
Participatingbusinesses indicated their actions were affected 
in the following ways by our current product liability system.

    Adverse Impacts Cited Based on Actual Liability Experience \29\
---------------------------------------------------------------------------

    \29\McQuire, The Conference Board, Research Report No. 908, 19 The 
Impact of Product Liability Table 28 (1988) [hereinafter Conference 
Board Report].

                                                                        
------------------------------------------------------------------------
   Type of Impact Reporting                                             
           Action:                         Percent of Firms:            
------------------------------------------------------------------------
Closed Production Plants.....  8                                        
Laid Off Workers.............  15                                       
Discontinued Product Lines...  36                                       
Decided Against Introducing    30                                       
 New Products.                                                          
Decided Against Acquiring/     17                                       
 Merging.                                                               
Discontinued Product Research  21                                       
Moved Production Offshore....  4                                        
Lost Market Share............  22                                       
------------------------------------------------------------------------

   adverse impacts cited based on anticipated liability problems\30\
---------------------------------------------------------------------------

    \30\ Conference Board Report Table 29 at 19.

                                                                        
------------------------------------------------------------------------
   Type of Impact Reporting                                             
           Action:                         Percent of Firms:            
------------------------------------------------------------------------
Closed Production Pants......  1                                        
Laid Off Workers.............  1                                        
Discontinued Product Lines...  11                                       
Decided Against Introducing    9                                        
 New Products.                                                          
Decided Against Acquiring/     5                                        
 Merging.                                                               
Discontinued Product Research  4                                        
Move Production Offshore.....  1                                        
Lost Market Share............  .........................................
------------------------------------------------------------------------

  In his testimony before the Subcommittee in 1990, Secretary 
of Commerce Robert Mosbacher testified that the Conference 
Board results show the extent of the indirect costs of the 
current product liability system. These indirect costs include 
``useful products . . . being discontinued, decisions not to 
develop new product lines or not to continue product research, 
and a fear to innovate.'' \31\ Many U.S. companies devote far 
more to product liability costs than to research and 
development efforts. For example, The National Machine Tool 
Builders Association (now called the Association for 
Manufacturing Technology) stated its members spend seven times 
more on product liability costs than on research and 
development.\32\
---------------------------------------------------------------------------
    \31\ Testimony of the Honorable Robert A. Mosbacher, April 5, 1990 
hearing, S. Hrg. 101-743 at 247 (1990).
    \32\ Testimony of Howard H. Fark, February 22, 1990 hearing, S. 
Hrg. 101-743 at 225-26.
---------------------------------------------------------------------------
  Product development is hindered in many ways by our existing 
product liability system. Sometimes, due to fears about joint 
liability, raw material suppliers refuse to sell necessary 
materials to manufacturers for new product concepts.
  For example, Ms. Julie Nimmons, Chief Executive Officer of 
Schutt Sports Group testified in 1993 that material suppliers 
are reluctant to sell to her company, a manufacturer of 
protective sporting goods equipment, for fear of liability. 
This reluctance sometimes kills new product development. Ms. 
Nimmons' company designed a new baseball product that 
functioned well in prototype testing, but the company was 
unable to produce the product because it could not obtain 
needed materials.\33\ More recently, the company chose not to 
produce hockey helmets, even though interest in the sport has 
grown substantially in the United States. ``In the final 
analysis,'' she said, ``we felt we could not pursue this market 
because of the additional, uncontrollable liability exposure it 
would create.'' \34\
---------------------------------------------------------------------------
    \33\ Testimony of Ms. Julie Nimmons, hearing of the Consumer 
Subcommittee, Senate Committee on Commerce, Science and Transportation, 
September 23, 1993, S. Hrg. 103-490 at 20.
    \34\ Testimony of Ms. Julie Nimmons, hearing of the Senate 
Committee on Commerce, Science and Transportation, March 4, 1997, at 2.
---------------------------------------------------------------------------
  This ``chilling effect'' extends beyond product 
manufacturers. In his testimony before the Subcommittee in 
1990, Secretary Mosbacher referenced reports that:

          Universities are shying away from licensing patents 
        to small manufacturers because of their fear that, as 
        the originators of the idea upon which a product was 
        manufactured, they will become the `deep pocket' if 
        there is litigation involving the product.\35\
---------------------------------------------------------------------------
    \35\ Testimony of the Honorable Robert A. Mosbacher, April 5, 1990 
hearing, S. Hrg. 101-743 at 249 (1990).

    This development is distressing because it is widely 
accepted that small companies play a crucial role in 
innovation.
    A report by the American Medical Association indicates the 
current product liability system also is having a ``profoundly 
negative impact on the development of new medical 
technologies.'' \36\ The report concluded:
---------------------------------------------------------------------------
    \36\ Testimony of Richard Kingham, April 5, 1990 hearing, citing, 
AMA Board of Trustees, ``Impact of Product Liability on the Development 
of New Medical Technologies,'' at 12 (June 1988) in Brief of Amici 
Curiae Pharmaceutical Manufacturer Association and American Medical 
Association in Browning Ferris Industries of Vermont, Inc. v. Kelco 
Disposal, Inc., 109 S. Ct. 2909 (1989).

          Innovative new products are not being developed or 
        are being withheld from the market because of liability 
        concerns or inability to obtain adequate insurance. 
        Certain older technologies have been removed from the 
        market, not because of sound scientific evidence 
        indicating lack of safety or efficacy, but because 
        product liability suits have exposed manufacturers to 
        unacceptable financial risks.\37\
---------------------------------------------------------------------------
    \37\ Id. at 1.

    Not only is actual product development suppressed, even 
basic scientific research is squelched by our product liability 
system. Dr. Malcolm Skolnick testified before the Subcommittee 
---------------------------------------------------------------------------
during the 101st Congress that:

          Scientific inquiry is stifled. Ideas in areas where 
        litigation has occurred will not receive support for 
        exploration and development. Producers fearful of 
        possible suit will discourage additional investigation 
        which can be used against them in future claims.\38\
---------------------------------------------------------------------------
    \38\ Testimony of Dr. Malcolm Skolnick, April 5, 1990 hearing, S. 
Hrg. 101-743 at 300 (1990).

    In 1992, Science magazine reported that liability concerns 
led at least two companies to delay AIDS vaccine research and 
another company to abandon a promising approach.\39\
---------------------------------------------------------------------------
    \39\ See Jon Cohen, ``Is Liability Slowing AIDS Vaccines?,'' 
Science, Apr. 10, 1992, at 168-69.
---------------------------------------------------------------------------
    Even established, beneficial products sometimes fall prey 
to our broken product liability system. For example, in 1984 
two of the three companies manufacturing the diphtheria-
tetanus-pertussis (DTP) vaccine decided to stop producing it 
due to product liability costs. Later that year, the Centers 
for Disease Control recommended doctors stop vaccinating 
children over age one in order to conserve limited supplies of 
the DTP vaccine for the most vulnerable infants.\40\
---------------------------------------------------------------------------
    \40\ The Liability Maze at 343.
---------------------------------------------------------------------------

                  D. U.S. competitiveness is hampered

  American business faces a competitive disadvantage in both 
international and domestic markets due to our flawed product 
liability system. American manufacturers and product sellers 
generally pay product liability insurance rates that are 20 to 
50 times higher than those of foreign competitors.\41\ This 
disparity is attributable, in large part, to the uncertainties 
and costs of the American tort litigation system.\42\ Insurers 
generally do not discount premiums when a manufacturer exports 
its goods, because there is a possibility that a product-
related suit will be brought in the United States. 
Consequently, each U.S. product shipped abroad contains an 
insurance cost element greater than that of a foreign 
competitor.\43\ In the ever more competitive international 
markets, the resultant price differences hamper American 
business.
---------------------------------------------------------------------------
    \41\ The Conference Board Report at 4 (citing a 1984 study 
commissioned by the U.S. Department of Commerce).
    \42\ Id.
    \43\ See Orban, Product Liability and International Trade and 
Policies, Product Liability and Tort Law Reform, National Legal Center 
for the Public Interest, 144 (April 21, 1982).
---------------------------------------------------------------------------
  American business is similarly disadvantaged in our domestic 
market when foreign companies enjoy a lower cost base due to 
their less expensive and more certain product liability 
systems. Often, the over-all cost base of foreign manufacturers 
is lower because they also benefit from a statue of repose in 
their home market. The Association of Manufacturing Technology 
has noted, for example, that the price of imported products can 
be lower due to the difference in liability insurance rates, if 
the importer does not sell all of its products in the United 
States.\44\
---------------------------------------------------------------------------
    \44\ Letter from James A. Gray, President, National Machine Tool 
Builders Association, to Jim J. Tozzi, Deputy Director of Information 
and Regulatory Affairs, Office of Management and Budget (June 14, 
1982). The letter also points out the effect of the lack of a statute 
of repose on this industry. AMT indicates there are cases in which 50-
year old products have been the subject of product liability lawsuits.
---------------------------------------------------------------------------
  Changes in conflict of law theory also have added to the 
competitive disadvantage faced by American firms. An 
individual, injured in a foreign country by a U.S. product, now 
may be able to sue the manufacturer in the United States and 
have U.S. law applied in the case. In the past, the rule of lex 
loci would have required the application of the foreign 
country's law.\45\ The diminished importance of lex loci means 
U.S. manufacturers may be held to higher and more costly 
product liability standards in both U.S. and foreign markets 
while foreign competitors only confront U.S. law in the United 
States.
---------------------------------------------------------------------------
    \45\ Testimony of Professor Aaron Twerski, September 19, 1991 
hearing, S. Hrg. 102-727 at 101-102 (1991); See Pray v. Lockheed 
Aircraft Corp., 644 F. Supp. 1289 (D.D.C. 1986) (Washington, D.C. law 
applied in lawsuit against U.S. manufacturer for damages arising 
outside Saigon, Vietnam).
---------------------------------------------------------------------------
  Professor Aaron Twerski testified in 1991 that ``uncontrolled 
damages have serious international implication(s)'' because the 
United States has been unable to get foreign countries to enter 
into treaties to enforce American judgments abroad due to 
``unregulated judgments.'' \46\ American businesses suffer as a 
result when they are unable to enforce overseas simple money 
judgments.\47\
---------------------------------------------------------------------------
    \46\ Testimony of Professor Aaron Twerski, September 19, 1991 
hearing, S. Hrg. 102-727 at 105.
    \47\ Id.
---------------------------------------------------------------------------

                E. Product Liability and Product Safety

  Those who oppose product liability reform believe the product 
liability system, as presently constructed, promotes safety. 
They argue alterations to the system will enable unsafe 
products to enter the market. Most often, those opposing reform 
argue that unbounded punitive damages are the threat that makes 
products safer.\48\
---------------------------------------------------------------------------
    \48\ See e.g., Testimony of Larry Stewart, President of the 
Association of Trial Layers of America, April 3, 1995 hearing, S. Hrg. 
104-435 at 138.
---------------------------------------------------------------------------
  There is a notable lack of evidence for these assertions. 
William Fry, the Executive Director of HALT, testified at the 
April 3, 1995 hearing that some states and foreign countries 
such as Canada do not have punitive damages yet ``there is no 
evidence that product liability suits there do not achieve 
changes in conduct.'' \49\ Fry noted that ``[f]or most 
defendants the stigma of punitive damages motivates reform'' 
because excessive punitive damages are usually overturned on 
appeal.\50\
---------------------------------------------------------------------------
    \49\ Testimony of William Fry, April 3, 1995 hearing, S.Hrg. 104-
435 at 88.
    \50\ Id.
---------------------------------------------------------------------------
  In his testimony on April 4, 1995, Professor M. Stewart 
Madden indicated that, in a punitive damage award, ``the public 
finding of rogue conduct can be as great a punishment, and as 
much a deterrent to the defendant and to other marketplace 
participants, as the punitive monetary award.'' \51\ Professor 
Madden explained ``[t]here is overwhelming evidence...that 
manufacturers are alert to public opinion as to their 
behavior.'' \52\ He also noted a punitive damage award will 
ensure that state and federal regulators descend on a defendant 
and thus assure they modify their conduct.\53\
---------------------------------------------------------------------------
    \51\ Testimony of M. Stuart Madden, April 4, 1995 hearing, S.Hrg. 
104-435 at 366.
    \52\ Id.
    \53\ Id.
---------------------------------------------------------------------------
  The editors of The Liability Maze also concluded that factors 
other than the product liability system--such as safety 
regulations--are responsible for the promotion of safety.\54\ 
For example, Professor John Graham of the Harvard University 
School of Public Health, conducted five case studies on whether 
there was a relationship between motor vehicle safety and 
product liability law. He concluded ``[t]he case studies 
provide little evidence that expanded product liability risk 
was necessary to achieve the safety improvements that have been 
made.'' \55\ Instead, Graham concluded vehicle safety 
regulation can provide a predictable and technically sound 
forum in which to resolve safety issues.\56\
---------------------------------------------------------------------------
    \54\ See The Liability Maze at 12-13.
    \55\ ``Product Liability and Motor Vehicle Safety'' in The 
Liability Maze at 183-184.
    \56\ Id. at 184.
---------------------------------------------------------------------------
  The safety benefits of product liability reform are evidenced 
in the General Aviation Revitalization Act, signed into law by 
President Clinton on August 17, 1994, which established a 
uniform, national statute of repose of 18 years for 
noncommercial general aviation aircraft. Opponents of product 
liability reform opposed that Act on the grounds that it would 
lead to the production of less safe aircraft. Quite the 
contrary has occurred. As the Act's proponents contended, the 
safety of general aviation aircraft has already improved as 
new, more advanced and safer component systems have been 
introduced into the general aviation market. The Act also 
enhanced safety because it fostered the domestic production of 
new, more modern general aviation aircraft.

                            F. Biomaterials

  There is an emerging crisis in the supply of biomaterials 
used in the production of implantable medical devices. 
Suppliers of raw materials and component parts are reluctant to 
sell to medical device manufacturers because, under current 
litigation practice, those suppliers are routinely sued with 
device manufacturers in actions alleging inadequate design and 
testing of the medical device and inadequate warnings related 
to the use of the medical device. Biomaterials suppliers, 
however, do not design, produce or test medical devices. 
Consequently, it is rare that biomaterials suppliers ultimately 
are held liable in these actions.
  Nonetheless, suppliers of biomaterials are reluctant to sell 
to medical device manufacturers because the costs of 
successfully defending themselves exceed the expected return 
from supplying the biomaterials. The biomaterials suppliers 
provide raw materials and component parts that are not designed 
or manufactured specifically for use in medical devices: these 
materials also are used in a variety of nonmedical products. As 
a result, supplying materials for medical devices is a very 
small portion of their business and is easily foregone to avoid 
the cost of successfully defending liability suits.
  Ms. Peggy Phillips, an attorney with a life-sustaining 
medical device, testified before the Subcommittee on April 4, 
1995, that in the current climate it did not make sense for 
biomaterials suppliers to continue providing those materials 
for device manufacturers. Ms. Phillips related that one 
supplier spent $8 million annually defending itself in cases 
involving temporomandibular joint (TMJ) implants even though 
that supplier had no role in the design, manufacture or sale of 
the device. Ms. Phillips noted sales by all suppliers to all 
TMJ implant manufacturers ``totaled $418,000 while sales of 
this same raw material to all other markets totaled $282 
million.'' \57\ In essence, biomaterials suppliers will not 
provide their product to medical device manufacturers because 
such transactions involve low returns and a high risk of 
substantial losses.
---------------------------------------------------------------------------
    \57\ Testimony of Peggy Phillips, April 4, 1995 hearing, S.Hrg. 
104-435 at 205.
---------------------------------------------------------------------------
    Millions of Americans, who rely on life-saving or life-
enhancing medical devices, face a potentially devastating 
health crisis if reforms are not instituted. For example, Tara 
Ransom, a nine-year old from Phoenix, Arizona, is alive today 
because a brain shunt (a plastic tube) relieves a severe 
medical condition called hydrocephalus that causes excess fluid 
to build around the brain.\58\ Children outgrow these shunts so 
they periodically need to be replaced, often in emergency 
procedures. Tara, and numerous other children, may not be able 
to have this medical device replaced, because companies that 
supplied basic materials for the medical device will no longer 
do so. Congressional action is urgently needed to avoid such 
tragedies.
---------------------------------------------------------------------------
    \58\ See Linda Ransom, Lawyers May Kill My Daughter, The Wall St. 
J., March 20, 1996.
---------------------------------------------------------------------------

 III. Federal reform is required as state reform is inherently limited

  Those opposing product liability reform argue, that if reform 
is desirable, it is the domain of the states.\59\ Reform is 
desirable, it is urgently needed, and given the nature and 
scope of the problem, only federal reform can be effective.
---------------------------------------------------------------------------
    \59\ See e.g. Testimony of Jeffrey Teitz, representing The National 
Conference of State Legislatures, April 3, 1995 hearing, S.Hrg. 104-435 
at 57; Testimony of Larry Stewart, President of The Association of 
Trial Lawyers of America, April 3, 1995 hearing, S.Hrg. 104-435 at 142.
---------------------------------------------------------------------------
  Reform by the states can do little to resolve the tort 
litigation problems facing those who deal in an interstate 
market. Products are manufactured, sold, used, and insured in a 
nationwide market. Data show the vast majority of products 
manufactured in a given state are consumed or used outside that 
state.\60\ As a result, manufacturers and product sellers may 
be involved in product liability actions governed by the law of 
any state in which they do business. Thus, an attempt by any 
one state to reform the system cannot relieve the overall 
burden imposed on interstate commerce.\61\ Insurers recognized 
this fact years ago and set liability insurance rates based on 
national data rather than on state data.
---------------------------------------------------------------------------
    \60\ Testimony of the Honorable Wendell L. Wilkie II, General 
Counsel, U.S. Department of Commerce, April 5, 1990 hearing, S. Hrg. 
101-743 at 48 (1990). It has been estimated 30.5 percent of 
manufactured goods are consumed in the manufacturing state. See, 1977 
Census of Transportation, Commodity Transportation Survey, Summary, 
U.S. Dept. of Commerce, Bureau of the Census, 1-77 (1981); American Bar 
Assoc. Section of Corporation, Banking and Business Law, Report to the 
House of Delegates, Attachment B. (1982). See generally Testimony of 
Randolph J. Stayin on behalf of the American Textile Machinery 
Association, Product Liability Act: Hearing before the Subcommittee on 
Consumer of the Senate Committee on Commerce, Science, and 
Transportation, 99th Cong., lst Sess., Rept. No. 99-84, 170 (1985).
    \61\ Several state governors have recognized this in vetoing 
proposed product liability legislation. See, e.g., Victor Schwartz and 
Barbara Bares, Federal Reform of Product Liability Law: A Solution That 
Will Work, 13 Cap. U. L. Rev. 351, 355 (1984).
---------------------------------------------------------------------------
  The National Governor's Association (NGA) has long recognized 
both the need for product liability reform and the necessity of 
federal action to effectuate that reform. As Governor of 
Arkansas, President Clinton was twice a member of NGA 
committees that drafted and unanimously approved resolutions 
calling for federal product liability reform.
  NGA's Director of State-Federal Relations, James Martin, 
testified before the Subcommittee on April 3, 1995 concerning 
the NGA's advocacy for federal product liability reform. Mr. 
Martin indicated that in 1982, the NGA opposed preemption of 
state law, but by 1986 this position was unanimously reversed 
to support uniform federal product liability laws.
  Mr. Martin testified the NGA ``traditionally has opposed 
federal preemption unless there are highly compelling reasons 
to justify federal actions that require changes in policies 
adopted by state officials.'' \62\ The Governors believe those 
conditions exist in the area of product liability.
---------------------------------------------------------------------------
    \62\ Testimony of James Martin, April 3, 1995 hearing, S.Hrg. 104-
435 at 26.
---------------------------------------------------------------------------
  On February 7, 1997 the NGA unanimously approved a resolution 
calling for product liability reform undertaken by the federal 
government. The resolution adopted, by the NGA provides an 
excellent summary of the need for reform executed on the 
federal level. That resolution reads, in part, as follows:

          The National Governors' Association recognizes that 
        the current patchwork of U.S. product liability laws is 
        too costly, time-consuming, unpredictable, and counter 
        productive, resulting in severely adverse effects on 
        American consumers, workers, competitiveness, 
        innovation and commerce.
          The issue of product liability reform has 
        increasingly pointed to federal action as a way to 
        alleviate the problems faced by small and large 
        businesses with regard to inconsistent state product 
        liability laws. This lack of uniformity and 
        predictability makes it impossible for product 
        manufacturers to accurately assess their own risks, 
        leading to the discontinuation of necessary product 
        lines, reluctance to introduce product improvements, 
        and a dampening of product research and development. 
        American small businesses are particularly vulnerable 
        to disparate product liability laws. For them, 
        liability insurance coverage has become increasingly 
        expensive, difficult to obtain, or simply unavailable. 
        Further, the system causes inflated prices for consumer 
        goods and adversely affects the international 
        competitiveness of the United States.
          Clearly, a national product liability code would 
        greatly enhance the effectiveness of interstate 
        commerce. The Governors urge Congress to adopt a 
        federal uniform product liability code.\63\
---------------------------------------------------------------------------
    \63\ NGA policy EDC-15 (1997).

    Kirk Dillard, a State Senator from Illinois, testified in 
April 1995, that the American Legislative Exchange Council 
(ALEC) strongly advocates states' rights but nevertheless 
supports enactment of federal product liability 
legislation.\64\ ALEC is a bipartisan organization of 
approximately 3,000 state legislators from all 50 states. Mr. 
Dillard indicated federal action is needed because ``virtually 
all business transactions have an interstate commerce 
component, subjecting companies to suits in numerous different 
states.'' \65\
---------------------------------------------------------------------------
    \64\ Testimony of Kirk W. Dillard, April 3, 1995 hearing, S.Hrg. 
104-435 at 32.
    \65\ Id. at 4.
---------------------------------------------------------------------------
  Professor Madden testified ``products liability law cries out 
for uniformity.'' \66\ Only federal legislation can create the 
uniformity necessary to relieve the enormous burdens imposed by 
the existing product liability system. Congress clearly has the 
power, under the interstate commerce clause of the United 
States Constitution, to enact reform.\67\ In the past, Congress 
has preempted state tort law when diverse state laws burdened 
interstate commerce.\68\
---------------------------------------------------------------------------
    \66\ Testimony of M. Stuart Madden, April 4, 1995 hearing, S.Hrg. 
104-435 at 376.
    \67\ U.S. Const., Art. I, Sec. 8, cl. 3.
    \68\ Congress preempted state tort reform to promote the nuclear 
power industry. See Duke Power Co. v. Carolina Environmental Study 
Group, 439 U.S. 59 (1978). See also Public Utility Holding Company Act 
of 1935, 15 U.S.C. sec. 79 et seq. (activities involved ``not 
susceptible of effective control by any State''); United States Cotton 
Standards Act, 7 U.S.C. sec. 51 et seq. (uniform national 
classifications necessary to protect and promote commerce); Cigarette 
Labeling and Advertising Act, 15 U.S.C. sec. 1331 et seq. (national 
standards essential in order that ``commerce and the national 
economy...not (be) impeded by diverse, nonuniform regulations''); 
Federal Employers' Liability Act, 45 U.S.C. 51 et seq.
---------------------------------------------------------------------------
  A clear articulation of the need for federal product 
liability reform is found in Garnes v. Fleming Landfill, 
Inc.\69\ The West Virginia Supreme Court stated, in an opinion 
drafted by the Chief Justice, Richard Neely, that, as to 
product liability:
---------------------------------------------------------------------------
    \69\ 413 S.E.2d 897, 905 (W. Va. 1991).

          State courts have adopted standards that are, for the 
        most part, not predictable, not consistent and not 
        uniform. Such fuzzy standards inevitably are most 
        likely to be applied arbitrarily against out-of-state 
        defendants. Moreover, this is a problem that state 
        courts are by themselves incapable of correcting 
        regardless of surpassing integrity and boundless 
        goodwill. State courts cannot weigh the appropriate 
        trade-offs in cases concerning the national economy and 
        national welfare when these trade-offs involve benefits 
        that accrue outside the jurisdiction of the forum and 
        detriments that accrue inside the jurisdiction of the 
---------------------------------------------------------------------------
        forum.

  Product liability reform must occur at the federal level 
because reform undertaken at the state level, either by courts 
or by legislatures, cannot address fully the problems with our 
product liability system.

                          LEGISLATIVE HISTORY

  S. 648 was introduced on April 24, 1997 by Senators Gorton, 
Ashcroft, McCain, Lott and Abraham. Although S. 648 is similar 
to S. 5, which bears the same title, there are important 
differences. S. 5 was introduced on January 21, 1997, by 
Senators Ashcroft, McCain and Lott. The text of the of S. 5 is 
identical to that of the Conference Report of the product 
liability bill from the 104th Congress. That Conference Report 
was vetoed by President Clinton.
  On March 4, 1997 Senator McCain chaired a Committee hearing 
on product liability reform. On March 6, 1997, Senator Ashcroft 
chaired a hearing of the Subcommittee on Consumer Affairs, 
Foreign Commerce and Tourism to explore the success of the 
General Aviation Revitalization Act of 1994. That bill provided 
a statute of repose for general aviation aircraft.
  The Committee on Commerce, Science and Transportation 
favorably reported S. 648 by a roll call vote of 11 to 9.
  The Committee has a long history of involvement with product 
liability reform. In the Committee's early treatment of the 
subject, it reported three bills, each of which was introduced 
by Senator Kasten. S. 2631 was reported by the Committee in the 
97th Congress (S. Rep. 97-670), and S. 44 was reported by the 
Committee in the 98th Congress (S. Rep. 98-476). Congress 
adjourned without Senate action on either of these measures.
  At the beginning of the 99th Congress, on January 3, 1985, 
Senator Kasten introduced S. 100, the Product Liability Act. 
This bill preempted state law to impose uniform federal rules 
and standards of liability governing the recovery of damages 
for injuries caused by defective products. The legislation was 
substantially the same as S. 44, which had been reported by the 
Committee during the 98th Congress.
  A Consumer Subcommittee hearing on S. 100 was held on March 
21, 1985 (Serial No. 99-84) and the bill was reviewed by the 
Committee at an executive session on May 16, 1985. At that 
session, the motion to report the bill was defeated by an 8-8 
vote.
  Prior to the May 16, 1985 executive session, two amendments 
in the nature of a substitute to S. 100 had been introduced. 
One of these amendments (S. Amdt. No. 16) was introduced by 
Senator Dodd on March 19, 1985, and the other (S. Amdt. No. 
100) was introduced by Senator Gorton on May 14, 1985. These 
amendments were complete substitutes for S. 100 that preempted 
certain aspects of state law and also established alternative 
expedited claim systems for limited recovery of damages in 
product liability cases. Hearings on the Dodd and Gorton 
amendments were held by the Consumer Subcommittee on June 18 
and June 25, 1985 (Serial No. 99-177).
  After these hearings, the Committee staff was instructed by 
the Chairman of the Commerce Committee, Senator Danforth, to 
draft a proposal that combined elements of all these measures. 
After review of extensive comments received from the public in 
connection with the Committee's first draft, a second draft was 
released on November 20, 1985. This draft was formally 
introduced by Senator Danforth on December 20, 1985, as S. 
1999. This bill was the subject of two days of hearings before 
the Consumer Subcommittee on February 27 and March 11, 1986.
  On April 30, 1986, Senator Kasten introduced an amendment in 
the nature of a substitute for S. 100 (S. Amdt. No. 1814).\70\ 
This amendment embodied recommendations for product liability 
reform that had been made by the administration's Tort Policy 
Working Group.\71\
---------------------------------------------------------------------------
    \70\ 132 Cong. Rec. S5106.
    \71\ Report of the Tort Policy Working Group on the Causes, Extent 
and Policy Implications of the Current Crisis in Insurance Availability 
and Affordability (February 1986).
---------------------------------------------------------------------------
  On May 12, 1986, Senator Danforth introduced an amendment in 
the nature of a substitute for S. 1999 (S. Amdt. No. 1951).\72\ 
This amendment replaced the expedited claim system of S. 1999 
with an expedited settlement system and made a number of other 
changes in S. 1999. On May 20, 1986, Senator Gorton introduced 
an amendment in the nature of a substitute to the Danforth 
amendment (S. Amdt. No. 1968).\73\ On May 19 and 20, 1986, the 
Consumer Subcommittee held hearings on the Kasten amendment, 
the Danforth amendment, and the other product liability 
measures before the Committee.
---------------------------------------------------------------------------
    \72\ 132 Cong. Rec. S5874.
    \73\ 132 Cong. Rec. S6232.
---------------------------------------------------------------------------
  On June 3, 1986, the Committee began its markup of product 
liability legislation. The markup draft bill was an original 
bill that embodied the provisions of the Danforth amendment to 
S. 1999. On June 12, the Committee adopted an amendment in the 
nature of a substitute for the original markup draft bill. On 
June 12, 19, 24, 25 and 26, 1986, the Committee continued its 
consideration of the amendment and added a number of other 
amendments before reporting S. 2760 as an original bill. S. 
2760 came before the full Senate on September 17, 1986. On 
September 25, the Senate agreed to the motion to proceed to S. 
2760 by a vote of 84 to 13. The bill was returned to the Senate 
Calendar, and no further action was taken.
  The primary activity on federal product liability legislation 
in the 100th Congress occurred in the House of Representatives. 
On February 18, 1987, Congressmen Bill Richardson and Thomas A. 
Luken introduced H.R. 1115, which was referred to the House 
Energy and Commerce Committee. The Subcommittee on Commerce, 
Consumer Protection and Competitiveness held extensive hearings 
on the need for federal product liability reform and on 
specific issues in the bill on May 5, May 20, June 18, July 21, 
August 6, October 7, and December 17, 1987. The Subcommittee 
met to mark up the bill on November 18, 19, and 20, and 
December 3 and 8, 1987. H.R. 1115 was reported by the 
Subcommittee, as amended, on December 8, 1987, by a vote of 11 
to 3. On May 10, 12, 18, 19, and 24, June 1, 2, 8, 9, and 14, 
1988, the Energy and Commerce Committee met to mark up H.R. 
1115, voting on June 14 to report H.R. 1115, as amended, 
favorably by a recorded vote of 30 to 12. H.R. 1115 then 
received a sequential referral to the House Committees on the 
Judiciary and on Education and Labor. The Education and Labor 
Committee held a hearing on September 27, 1988, on provisions 
in H.R. 1115 that affected workplace safety. The House 
Judiciary Committee took no action on the bill in the 100th 
Congress. The sequential referral ran through the end of the 
session, so the 100th Congress adjourned without considering 
H.R. 1115 on the floor of the House.
  During the 101st Congress, the Committee held three hearings 
on S. 1400, the Product Liability Reform Act, introduced by 
Senator Kasten (S. Hrg. 101-243). On May 22, 1990, the Commerce 
Committee reported an amendment in the nature of a substitute 
to S. 1400 by a roll call vote of 13 to 7 (S. Rep. 101-356). 
The full Senate took no action before the adjournment of the 
101st Congress.
  In the 102nd Congress, Senator Kasten introduced S. 640 on 
March 13, 1991. There were 36 cosponsors of the bill, including 
seven members of the Committee. On September 12, 1991, the 
Consumer Subcommittee held a hearing on S. 640 and the full 
Commerce Committee held a second day of hearings on S. 640 and 
S. 645, The General Aviation Accident Standards Act of 1991, on 
September 19, 1991. On October 3rd, the Committee favorably 
reported S. 640 by a roll call vote of 13 to 7.
  On May 7, 1992, the provisions of S. 640 were incorporated 
into an amendment offered by Senator Kasten to S. 250, the 
National Voter Registration Act. On May 14, the amendment was 
tabled by a vote of 53 to 45. On June 26, the bill was 
sequentially referred to the Committee on the Judiciary until 
August 12. The Judiciary Committee held a hearing on August 5th 
but took no further action. Under the terms of a unanimous 
consent agreement, on September 8, the Senate began 
consideration of a motion to proceed to consider S. 640. On 
September 10, the Senate failed to invoke cloture on the motion 
to proceed by a vote of 57 to 39. A motion to reconsider that 
vote was agreed to by a vote of 57 to 39, and a subsequent 
cloture vote failed 58 to 38. No further action was taken.
  In the 103rd Congress, Senators Rockefeller and Gorton 
introduced S. 687, The Product Liability Fairness Act, on March 
31, 1993. The Consumer Subcommittee held a hearing on S. 687 on 
September 23, 1993 (S. Hrg.103-490). On November 9, 1993 the 
Committee ordered S. 687 favorably reported by a roll call vote 
of 16 to 4. The bill was taken to the floor and on June 28, 
1994 a motion to invoke cloture failed 54 to 44. On June 29, 
1994 a second motion to invoke cloture failed 57 to 41.
  In the 104th Congress, Senators Jay Rockefeller and Slade 
Gorton introduced, on March 15, 1995, S. 565, the Product 
Liability Fairness Act. On March 10, 1995, the House of 
Representatives had passed legislation, H.R. 956, the Common 
Sense Product Liability and Legal Reform Act of 1995, by a vote 
of 265 to 161. On April 3 and 4, 1995, the Subcommittee on 
Consumer Affairs, Foreign Commerce and Tourism held hearings on 
S. 565 (S.Hrg. 104-435). At the Committee executive session on 
April 6, 1995, the Chairman of the Commerce Committee, Senator 
Pressler, offered an amendment in the nature of a substitute 
that maintained the original content of S. 565 but, among other 
things, incorporated as Title II, S. 303, The Biomaterials 
Access Assurance Act. S. 303 was introduced by Senators 
Lieberman and McCain on January 31, 1995, and was referred to 
the Commerce Committee. On April 6, 1995, the Senate Committee 
on Commerce, Science, and Transportation favorably reported S. 
565 as amended by the Chairman's mark by a roll call vote of 13 
to 6 (S. Report 104-69). The bill was taken up by the Senate on 
April 24, 1995 and was approved by a vote of 61 to 37 on May 
10, 1995.
  A Conference Report, H.R. 956 the Common Sense Product 
Liability and Legal Reform Act of 1996 was issued on March 14, 
1996. The conference report was very similar to the bill 
originally passed by the Senate. The Senate approved the 
conference report by a vote of 59 to 40 on March 21, 1996. The 
House of Representatives passed the Conference Report on March 
29 by a vote of 259 to 158. The President vetoed the bill on 
May 2, 1996.

                      SUMMARY OF MAJOR PROVISIONS

  The major provisions of S. 648 are summarized below in the 
order they appear in the bill.

                  A. Title I: Product Liability Reform

1. Section 102: Applicability; preemption

  The Act applies to any product liability action filed on or 
after the Act's date of enactment. The Act preempts State law 
only to the extent that State law applies to an issue covered 
in the Act. If an issue is not covered in the bill state law is 
not preempted on that point.

2. Section 103: Liability rules applicable to product sellers, renters, 
        and lessors

  Product sellers are held liable only for their own negligence 
or failure to comply with an express warranty. The product 
seller,however, remains liable as if it were the manufacturer 
if the manufacturer cannot be brought into court or is unable to pay a 
judgment. This provision assures injured persons will always have 
available an avenue for recovery.

3. Section 104: Defense based on claimant's use of intoxicating alcohol 
        or drugs

  The defendant has a complete defense if the plaintiff was 
under the influence of intoxicating alcohol or illegal drugs 
and as a result of this influence was more than 50 percent 
responsible for the plaintiff's injuries.

4. Section 105: Misuse or alteration

  A defendant's liability is reduced to the extent a claimant's 
harm is due to the misuse or alteration of a product.

5. Section 106(a): Statute of Limitations

  The statute of limitations is established as two years from 
when the claimant discovered or should reasonably have 
discovered both the harm and its cause. This ``discovery rule'' 
for the statute of limitations will assure that potential 
plaintiffs have a fair opportunity to bring suit.

6. Section 106(b): Statute of Repose

  A statute of repose of 18 years is established for product 
liability lawsuits. After 18 years or longer, no suit may be 
filed for injuries related to their use unless the defendant 
made an express warranty in writing as to the safety of the 
specified product involved, and the warranty was longer than 
the period of repose (18 years). In such situations, the 
statute of repose does not apply until that warranty period is 
complete. The statute of repose does not apply in cases 
involving toxic harm.

7. Section 107: Alternative dispute resolution procedures

  Either party may offer to participate in a voluntary, non-
binding state-approved alternative dispute resolution (ADR) 
procedure.

8. Section 108: Uniform standards for award of punitive damages

  Punitive damages may be awarded if a plaintiff proves, by 
``clear and convincing evidence,'' that his or her harm was 
caused by the defendant's ``conscious, flagrant indifference to 
the safety of others.''
  Punitive damages may be awarded up to two times compensatory 
damages or $250,000 whichever is greater. The judge is 
permitted to award punitive damages beyond this limit after 
considering certain factors, but the judge cannot exceed the 
amount of the jury's original award.
  When the defendant is a small business (or similar entity) 
with less than 25 full-time employees, punitive damages may not 
exceed $250,000 or two times compensatory damages, whichever is 
less. When a small business is the defendant, the judge is not 
permitted to award punitive damages above this limit as the 
judge may when a big business is the defendant.
  Either party can request the trial be conducted in two 
phases, one dealing with compensatory damages and the other 
dealing with punitive damages. The same jury is used in both 
phases.

9. Section 109: Liability for Certain Claims Relating to Death

  This provision gives Alabama the opportunity to change its 
unique laws that provide that only punitive damages are 
available in a wrongful death action. Since Alabama uses this 
terminology the punitive damage provisions of the bill would 
apply to wrongful death actions not just to product liability 
actions as intended.

10. Section 110: Several Liability for Noneconomic Damages

  Joint liability is abolished for noneconomic damages, such as 
pain and suffering. As to these damages, defendants are liable 
only in direct proportion to their responsibility for the 
claimant's harm.

               B. Title II: Biomaterials Access Assurance

  The Biomaterials Access Assurance Act would allow suppliers 
of the raw materials and component parts (``biomaterials'') 
used to make medical implants, to obtain dismissal, without 
extensive discovery or other legal costs, in certain tort suits 
in which plaintiffs allege harm from a finished medical 
implant.
  The Act would not affect the ability of plaintiffs to sue 
manufacturers or sellers of medical implants. It would, 
however,allow raw materials suppliers to be dismissed from 
lawsuits if the generic raw material used in the medical device 
met contract specifications, and if the biomaterials supplier 
cannot be classified as either a manufacturer or seller of the 
medical implant.

1. Section 201: Short Title

  This section states the short title of the bill: the 
``Biomaterials Access Assurance Act of 1997.''

2. Section 202: Findings

  This section contains the findings upon which the bill is 
based. A health care crisis is developing because the supply of 
medical devices is at risk. Many raw materials suppliers are 
now reluctant to sell their products to medical device 
manufacturers because of possible exposure to product liability 
suits.

3. Section 203: Definitions

  Various terms used in Title II are defined.
  Litigation concerning silicone gel breast implants is 
excluded from the bill. This is accomplished by excluding such 
plaintiffs from the definition of ``claimant'' (section 
203(2)(D)(iii)).

4. Section 204: General Requirements; applicability; preemption

  This section specifies that, in any civil action covered by 
the bill, a biomaterials supplier may raise any defense set 
forth in section 205, and the court must use the procedures set 
forth in section 206 in connection with that defense.
  Section 204 states that the bill applies to any civil action 
brought by a claimant in Federal or State court against a 
manufacturer, seller, or biomaterials supplier, on the basis of 
any legal theory, for harm allegedly caused by an implant.
  Section 204 states that the bill preempts State law to the 
extent the bill establishes a rule of law.
  This section also states that the bill may not be construed 
to affect any defense available to a defendant under other 
provisions of law in an action alleging harm caused by an 
implant.

5. Section 205: Liability of biomaterials suppliers

  This section restricts the liability of biomaterials 
suppliers in lawsuits covered by the bill to three situations, 
where the supplier: (I) was itself the manufacturer of the 
implant; (ii) was itself the seller of the implant; or (iii) 
furnished raw materials that failed to meet applicable 
contractual requirements or specifications.
  A supplier may be deemed to be a manufacturer only if the 
supplier registered as such with the FDA pursuant to medical 
device requirements or if the Secretary of HHS issues a 
declaration that the supplier should have registered as such. 
Section 205 also establishes a procedure for the Secretary to 
issue such a declaration.
  A supplier may be deemed to be a seller and thus liable in 
situations in which the supplier itself resold the implant 
after it had been manufactured and had entered the stream of 
commerce.
  With respect to contractual requirements, a supplier may be 
liable for harm only if the claimant shows that the 
biomaterials were not the actual product for which the parties 
contracted or the biomaterials failed to meet certain 
specifications and that failure was the cause of the injury. 
The relevant specifications are those: (I) provided to the 
supplier by the manufacturer; (ii) provided by the manufacturer 
(either published, given to the manufacturer, or included in an 
FDA master file); or (iii) included in manufacturer submissions 
that had received clearance from the FDA.

6. Section 206: Procedures for dismissal of civil actions against 
        biomaterials suppliers

  Subsection (a) establishes a new procedure for dismissal of 
lawsuits against suppliers. A supplier named as a defendant or 
joined as a co-defendant may file a motion for dismissal based 
on the defenses set forth in section 205.
  Subsection (b) requires that a plaintiff sue a manufacturer 
directly whenever jurisdiction over the manufacturer is 
available.
  Subsection (c) establishes procedural requirements for the 
proceeding on a motion to dismiss. A motion on the ground that 
the supplier is not a manufacturer would be automatically 
granted if the supplier had not filed with the FDA as a 
manufacturer of the implant unless the plaintiff obtained a 
ruling from the FDA that the supplier should have registered as 
a manufacturer. A ruling on the supplier's pretrial motion for 
dismissal is based solely on the pleadings and any affidavits.
  If the pleadings and affidavits raise genuine issues of 
material facts with respect to a motion concerning compliance 
with contractual requirements and specifications, the court may 
treat the motion for dismissal as a motion for summary judgment 
in accordance with section 206(d).
  Discovery is limited to establishing whether an issue of 
material fact exists. The court would grant the summary 
judgment motion unless the plaintiff has submitted evidence 
sufficient to allow a jury to reach a verdict for the 
plaintiff.
  Subsections (f) and (g) change other procedural aspects to 
reduce the litigation burdens. The manufacturer, not the 
supplier, may conduct the proceeding on the motion if an 
appropriate contractual indemnification agreement exists. The 
possibility of frivolous claims against a supplier is reduced 
by permitting the court to require the plaintiff to pay 
attorney fees if the plaintiff succeeds in making the supplier 
a defendant, but ultimately is found to have a meritless claim.

       C. Title III: Limitations on Applicability; Effective Date

1. Section 301: Effect of court of appeals decisions

  A decision by a Federal circuit court of appeals concerning 
this Act is deemed a controlling precedent for any Federal or 
State court within the geographical boundaries of the area 
under the jurisdiction of the circuit court of appeals.

2. Section 302: Federal cause of action precluded

  Federal district courts are precluded from jurisdiction 
pursuant to sections 1331 or 1337 of title 28, United States 
Code.

3. Section 303: Effective Date

  The Act applies to any action filed on or after the date the 
legislation is enacted.

                            Estimated Costs

  In accordance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate and Section 403 of the 
Congressional Budget Act of 1974, the Committee provides the 
following cost estimate, prepared by the Congressional Budget 
Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, May 14, 1997.
Hon. John McCain,
Chairman, Committee on Commerce, Science, and Transportation, U.S. 
        Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 648, the Product 
Liability Reform Act of 1997.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Susanne S. 
Mehlman (for federal costs), and Pepper Santalucia (for the 
state and local impacts).
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).
    Enclosure.

S. 648--Product Liability Reform Act of 1997

    CBO estimates that enacting the bill would have no 
significant effect on the federal budget. Because the bill 
would not affect direct spending or receipts, pay-as-you-go 
procedures would not apply. The bill contains intergovernmental 
mandates as defined in the Unfunded Mandates Reform Act of 1995 
(UMRA), but CBO estimates that the net costs of complying with 
those mandates would be well below the threshold established in 
the law ($50 million in 1996, adjusted annually for inflation). 
This bill would impose no new private-sector mandates as 
defined in UNRA.
    S. 648 would set new standards for product liability cases 
and would limit the amount of punitive damages that may be 
awarded to a plaintiff to two times the plaintiff's 
compensatory damages or $250,000 whichever would be larger. 
However, if the defendant is a small business, any punitive 
damages awarded would be capped at $250,000. The new standards 
included in S. 648 would determine when the seller of a product 
or the supplier of biomaterials (raw materials used to make 
medical implants) is liable for damages and when a defense 
based on a claimant's use of drugs or alcohol could be used. S. 
648 also would abolish joint liability for noneconomic damages 
and would enable private parties to use alternative dispute 
resolution procedures to settle product liability cases. In 
addition, the bill would prohibit the filing of a lawsuit 
unless the compliant is filed within two years from when the 
injured party discovered, or should reasonably have discovered, 
the alleged harm and its cause as long as this period for 
discovery does not exceed 18 years from when the product was 
first sold.
    While some product liability cases may be tried in federal 
court, the majority of such cases are handled in state courts. 
Based on information from the Administrative Office of the 
United States Courts, CBO estimates that enacting this bill 
would have no significant impact on the number of cases that 
would be referred to federal courts. Thus, we estimate that 
enacting S. 648 would have no significant impact on the federal 
budget.
    The bill contains intergovernment mandates as defined in 
UMRA because it would preempt state laws in setting national 
standards for product liability cases. States could initially 
incur some costs in adjusting to the new national standards. 
Based on information from the National Center for State Court, 
CBO estimates that those cost would be well below the threshold 
established in the law ($50 million in 1996, adjusted annually 
for inflation). In the longer run, states could realize net 
savings if this bill were to discourage potential plaintiff 
from filing product liability suits.
    In addition, the bill would limit punitive damage award 
against local governments in product liability cases to no more 
than $250,000. This provision could result in savings to 
individual localities, but based on the number of punitive 
damage awards in recent years CBO estimates that aggregate 
savings to all localities nationwide would not be significant.
    The CBO staff contacts are Susanne S. Mehlman (for federal 
costs), and Pepper Santalucia (for the state and local impact). 
This estimate was approved by Robert A. Sunshine, Deputy 
Assistant Director for Budget Analysis.

                      Regulatory Impact Statement

  In accordance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee provides the 
following evaluation of the regulatory impact of the 
legislation, as reported.

                       Number of persons affected

  The purpose of this product liability reform legislation, as 
reported, is to provide greater certainty as to the rights and 
responsibilities of all those involved in product liability 
disputes, to reduce transaction costs, to relieve the burden 
imposed on interstate commerce by the present product liability 
litigation system, and to ensure the continued availability of 
biomaterials for implantable medical devices. It is anticipated 
that it will affect the conduct of those involved in product 
liability disputes by making a number of significant changes in 
the laws that are applicable to all product liability actions. 
This legislation does not change the jurisdiction of state or 
federal courts. Thus, the number of persons affected should be 
consistent with current levels.

                            Economic impact

  It is anticipated that this legislation will result in 
substantial cost and paperwork savings to all parties affected 
by product liability lawsuits. First, the legislation will 
bring greater predictability to this area of the law, and, 
thus, save time and money for manufacturers, product sellers 
and consumers alike, each of whom will be able to determine 
their rights more readily than under current law. The 
legislation should also foster product innovation and enhance 
the competitive position of U. S. product manufacturers in 
world markets.

                                Privacy

  S. 648 will have no adverse impact on the personal privacy of 
the individuals or businesses affected.

                               Paperwork

  S. 648 creates no new regulations and imposes no additional 
regulatory requirements at either state or the federal level. 
The legislation will not change the jurisdiction of state or 
federal courts.

                 SECTION-BY-SECTION ANALYSIS OF S. 648

Section 1--Short title and table of contents

  Section 1(a) identifies the short title of the legislation as 
the ``Product Liability Reform Act of 1997'' (the ``Act''). 
Section 1(b) sets forth the Table of Contents to the Act.

Section 2--Findings and purposes

  Section 2 contains the ``Findings'' of Congress and the 
``Purposes'' of the Act.

                       TITLE I--PRODUCT LIABILITY

Section 101--Definitions

  Section 101 defines terms or phrases used in the Act.
  Section 101 defines the following terms:
  (1) Actual Malice.--The term means specific intent to cause 
serious physical injury, illness, disease, death, or damage to 
property.
  (2) Claimant.\74\--As used in this title, the term means any 
person who brings a product liability action and any person on 
whose behalf such an action is brought.\75\ If a product 
liability action is brought through or on behalf of an estate, 
the term includes the claimant's decedent. If a product 
liability action is brought through or on behalf of a minor, 
the term includes the minor's legal guardian.
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    \74\ The Act does not alter or preempt State law governing who may 
be a ``claimant.'' For example, state statutes governing who may bring 
a wrongful death or survival action are not affected by the Act. Such 
persons, if authorized by State law to bring the action, are 
``claimants'' under the Act.
    \75\ Title II of the Act also contains a definition for the term 
``claimant.'' See section 203(2). The definition found in section 
203(2) is to be applied in actions governed by that Title.
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  (3) Clear And Convincing Evidence.--The phrase means that 
measure or degree of proof that will produce in the mind of the 
trier of fact a firm belief or conviction as to the truth of 
the allegations sought to be established. The ``clear and 
convincing evidence'' standard reflects the quasi-criminal 
nature of punitive damages; it requires proof greater than the 
``preponderance of the evidence'' standard ordinarily used in 
civil cases, but less proof than the ``beyond a reasonable 
doubt'' standard found in the criminal law.
  (4) Commercial Loss.--The term means any loss or damage 
solely to a product itself, loss relating to a dispute over its 
value, or consequential economic loss, the recovery of which is 
governed by the Uniform Commercial Code or analogous state 
commercial or contract law.
  (5) Compensatory Damages.--The term means damages awarded for 
economic and noneconomic loss.
  (6) Economic Loss.--The term means any pecuniary loss 
resulting from harm, including any medical expense, work loss, 
replacement services loss, loss due to death, burial costs, and 
loss of business or employment opportunities, to the extent 
recovery for such loss is allowed under applicable state law.
  The essential distinction between economic and noneconomic 
loss is that economic loss is subject to empirical measurement 
and confirmation. In contrast, noneconomic loss, such as ``pain 
and suffering,'' is not capable of measurement according to an 
objective standard.\76\
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    \76\ See McCormick, Handbook on the Law of Damages 318 (1935).
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  (7) Harm.--The term is defined to include any physical 
injury, illness, disease, or death, or damage to property 
caused by a product.\77\ Whether the harm is suffered by an 
individual or a business is of no consequence; it is the nature 
of the loss that triggers application of the Act. The Act 
leaves recovery for commercial losses to commercial law, in 
accord with the traditional rule followed in the overwhelming 
majority of states.\78\
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    \77\ Title II of the Act also contains a definition for the term 
``harm.'' See section 203(4). The definition found in section 203(4) is 
to be applied in actions governed by that Title.
    \78\ Where a court determines that a commercial loss resulting from 
damage caused by a product is recoverable in tort, in contravention of 
the traditional rule, those losses would be included in the definition 
of ``harm'' and the Act would apply.
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  (8) Manufacturer.--The term is defined as (A) any person who 
is engaged in a business to produce, create, make, or construct 
any product (or component part of a product), and who (I) 
designs or formulates the product (or component part of the 
product), or (ii) has engaged another person to design or 
formulate the product (or component part of the product).\79\ 
The term does not include a person who only designs or 
formulates a product--such as an architect or engineer. These 
persons, although not liable under the Act, may be liable under 
traditional tort law for failure to exercise reasonable skill 
and care in rendering their services.
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    \79\ Title II of the Act also contains a definition for the term 
``manufacturer.'' See section 203(6). The definition found in section 
203(6) is to be applied in actions governed by that Title.
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  A product seller may be deemed a ``manufacturer'' of the 
product (or component part of a product) in two situations. 
First, the product seller is a ``manufacturer'' of a product 
with respect to those aspects of a product (or component part 
of a product) which are created or affected when, before 
placing the product in the stream of commerce, the product 
seller produces, creates, makes, or constructs, and designs, or 
formulates, or has engaged another person to design or 
formulate, an aspect of a product (or component part of a 
product) made by another person.
  For example, a company may manufacture a truck and deliver it 
to a product seller. Prior to selling that vehicle, the product 
seller may design and create what becomes a new aspect of the 
truck by, for example, adding a cabin unit. The product seller 
is, then, the manufacturer of the end product with respect to 
all aspects of the product that are affected or created by the 
addition (e.g., the cabin unit). Thus, the product seller is 
the ``manufacturer'' with respect to defects in the cabin unit 
itself and with respect to defects created by adding the unit 
to the original truck. This rule fairly holds the product 
seller responsible for the consequences of designing and 
creating a new product from the original product; the Act does 
not intend to impose the manufacturer's liability on a product 
seller who merely cleans, paints, or reconditions the truck 
with parts that are designed or manufactured by someone else.
  Second, a product seller is deemed to be the ``manufacturer'' 
of a product where the product seller holds itself out as the 
manufacturer to the user of the product. Where a product seller 
attaches the product seller's own private label to a product 
made by another, the product seller's name and reputation 
become a representation of the product's quality in design and 
manufacture. The rule holding a product seller responsible for 
harms caused by products that the product seller ``endorses'' 
with the product seller's private label is uniformly applied by 
the states.
  (9) Noneconomic Loss.--The term means subjective, nonmonetary 
loss resulting from harm, including pain, suffering, 
inconvenience, mental suffering, emotional distress, loss of 
society and companionship, loss of consortium, injury to 
reputation, and humiliation.
  (10) Person.--The Act uses a broad definition of the term 
``person.'' The term is defined to include an individual, 
corporation, company, association, firm, partnership, society, 
joint stock company and any other entity (including 
governmental entities).
  (11) Product.--The term is defined as any object, substance, 
mixture, or raw material in a gaseous, liquid, or solid state 
which, at the time of manufacture (I) is capable of delivery 
itself or as an assembled whole, in a mixed or combined state, 
or as a component part or ingredient; (ii) is produced for 
introduction into trade or commerce; (iii) has intrinsic 
economic value; and (iv) is intended for sale or lease to 
persons for commercial or personal use. The term does not 
include tissue, organs, blood, and blood products used for 
therapeutic or medical purposes, except to the extent that such 
tissue, organs, blood and blood products (or the provision 
thereof) are subject, under applicable State law, to a standard 
of liability other than negligence.\80\ The term also does not 
include electricity, water delivered by a utility, natural gas, 
or steam.
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    \80\ Claims for harm caused by tissue, organs, blood and blood 
products used for therapeutic or medical purposes are, in the view of 
most courts, claims for negligently performed services and are not 
subject to strict product liability. The Act thus respects State law by 
providing that, in those states, the law with respect to harms caused 
by these substances will not be changed. In the past, however, a few 
states have held that claims for these substances are subject to a 
standard of liability other than negligence, and this Act does not 
prevent them from doing so. See, e.g., Cunningham v. MacNeal Memorial 
Hosp., 266 N.E.2d 897 (Ill. 1970) (overturned by Ill. Ann. Stat. Ch. 
111+, sections 2 and 3). Such actions, however, would be governed by 
the Act. The underlying principle is that if a state treats what is 
traditionally considered a service like a product by applying strict 
liability, then the action will be governed by the Act.
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  (12) Product Liability Action.--The term means a civil action 
brought on any theory for harm caused by a product.
  (13) Product Seller.--A ``product seller'' is any person who, 
in the course of a business conducted for that purpose, sells, 
distributes, rents, leases, prepares, blends, packages, labels, 
or otherwise is involved in placing a product in the stream of 
commerce, or who installs, repairs, refurbishes, reconditions, 
or maintains the harm-causing aspect of the product. The 
definition includes anyone in the chain of distribution, such 
as a wholesaler, distributor, or retailer.
  The term specifically excludes sellers or lessors of real 
property. Actions against such sellers or lessors will continue 
to be governed by state law.
  The term also excludes providers of professional services in 
any case in which the sale or use of a product is incidental to 
the transaction and the essence of the transaction is the 
furnishing of judgment, skill, or services. Where, for example, 
an engineer, pharmacist, optician, or physician provides or 
uses a product in connection with that person's professional 
services, the person is not a product seller under the Act. The 
majority rule is that a professional is required to exercise 
reasonable care, prudence, and skill in rendering services. 
Where failure to do so results in harm, injured persons have 
remedies under traditional state tort law theories and do not 
have a claim under this Act.
  If, however, a professional engages in a commercial 
transaction where the essence of the transaction is not the 
furnishing of professional skill and judgment, the professional 
may be a product seller. For example, a pharmacist who sells 
perfume or photographic film may be a product seller within the 
scope of the Act. In such a case, the sale rather than the 
exercise of professional skill is the essence of the 
transaction; the action would therefore be governed by the Act.
  The term ``product seller'' also excludes persons who act in 
only a financial capacity with respect to the sale of a product 
or who lease a product under a lease arrangement in which the 
lessor does not select the leased product and does not during 
the lease term ordinarily control the daily operation and 
maintenance of the product. Such persons, called ``finance 
lessors,'' generally have no contact with the product and do 
not provide advice about the product or its selection. These 
persons merely provide the money to transfer the product to the 
lessee. Courts that have considered the issue uniformly hold 
that finance lessors are not product sellers.
  (14) Punitive Damages.--The term means damages awarded 
against any person or entity to punish or deter such person or 
entity, or others, from engaging in similar behavior in the 
future.
  (15) State.--This definition is broad and is intended to 
include the District of Columbia, all the States, territories, 
and possessions of the United States, and any of their 
political subdivisions.

Section 102--Applicability; preemption

  The U.S. Commerce Department reports that, on average, over 
seventy percent of the products that are manufactured in a 
particular state are shipped out of the state and sold.\81\ The 
current patchwork of varying state product liability laws sends 
confusing and often conflicting signals to those who use, make, 
or sell products in the United States. Uncertainties in our 
Nation's product liability system create unnecessary legal 
costs and impede interstate commerce and stifle innovation, 
among other problems. Scholars have recognized that the current 
product liability system does not distinguish well between good 
products and dangerous, defective products. The Act helps make 
this distinction; it also simplifies the law, and reduces the 
costs and unpredictability of the current system.
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    \81\ See Commodity Transportation Survey, U.S. Dept. of Commerce, 
Bureau of the Census, Table 1, pp. 1-7 (1977).
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  Congress has the power under the Commerce Clause of the 
United States Constitution to enact a federal product liability 
statute that preempts state law.\82\ ``Any such legislation 
would offend neither the Tenth Amendment's recognition of state 
sovereignty . . . nor the Fifth Amendment's traditional notions 
of due process and equal protection.'' \83\ Congress has long 
exercised its authority in matters of interstate commerce by 
enacting federal solutions to problems, \84\ including the 
enactment of statutes that preempt state tort law.\85\
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    \82\ See U.S. Const., art. I, Sec. 8, cl. 3. The Commerce Clause 
power extends to interstate and intrastate activities which affect 
interstate commerce. See e.g., Federal Energy Regulatory Comm'n v. 
Mississippi, 456 U.S. 742 (1982); Fry v. United States, 421 U.S. 64842 
(1976); Katzenbach v. McClung, 379 U.S. 294 (1964); Wickard v. Filburn, 
317 U.S. 111 (1942).
    \83\ Schmidt & Derman, The Constitutionality of Federal Products 
Liability/Toxic Tort Legislation, 6 J. Prod. Liab. 171, 184 (1983). See 
also Duke Power Co. v. Carolina Envtl. Study Group, Inc., 438 U.S. 
6489, 93 (1978) (Price-Anderson Act, which preempted state tort law in 
order to promote the nuclear power industry, is permissible under the 
Due Process and Equal Protection Clauses of the United States 
Constitution).
    \84\ For example, Congress enacted the United States Grain 
Standards Act in 1916, 7 U.S.C. Sec. Sec. 71-87, 111, 113, 241-73, 2209 
and 16 U.S.C. Sec. Sec. 490, 683 (establishing uniform national 
standards for grain); the United States Cotton Standards Act in 1923, 7 
U.S.C. Sec. Sec. 51-65 (requiring uniform classifications for judging 
quality or value of cotton); the Tobacco Inspection Act in 1935, 7 
U.S.C. Sec. Sec. 511-511q (requiring compliance with uniform national 
classifications); the Public Utility Holding Company Act of 1935, 15 
U.S.C. Sec. Sec. 79 et seq. (activities involved ``not susceptible of 
effective control by any State''); the Food, Drug and Cosmetic Act in 
1938, 21 U.S.C. Sec. Sec. 21 U.S.C. Sec. Sec. 30192 (safety and 
labeling of drugs); the Consumer Product Safety Act in 1972, 15 U.S.C. 
Sec. Sec. 2051-2083 and 5 U.S.C. Sec. Sec. 5314, 5315 (uniform safety 
standards for consumer products); and the Cigarette Labeling and 
Advertising Act, 15 U.S.C. Sec. Sec. 1331 et seq. (national standards 
essential in order that ``commerce and the national economy . . . not 
(be) impeded by diverse, nonuniform regulations''). The 104th Congress 
enacted the Aviation Disaster Family Assistance Act of 1996, Pub. L. 
No. 104-264, limiting unsolicited contacts by lawyers or insurance 
company representatives with airline crash victims or their families.
    \85\ See, e.g., Longshore and Harbor Workers' Compensation Act, 33 
U.S.C. Sec. Sec. 901 et seq. (imposing liability without regard to 
fault); Price-Anderson Act, 42 U.S.C. Sec. 2210 (limiting liability for 
nuclear power plant accidents); Federal Employers' Liability Act, 45 
U.S.C., Sec. Sec. 51 et seq. (governing the liability of interstate 
railway carriers to their employees and altering State tort law on 
available defenses).
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  For example, the 103rd Congress enacted the General Aviation 
Revitalization Act of 1994, which was signed by President 
Clinton on August 17, 1994.\86\ That law established a uniform, 
national eighteen-year statute of repose for general aviation 
aircraft; it represents sound public policy and addressed a 
problem of interstate commerce. The 104th Congress enacted the 
Private Securities Litigation Reform Act of 1995, \87\ the 
Federally Supported Health Centers Assistance Act of 1995, \88\ 
and the Bill Emerson Good Samaritan Food Donation Act of 
1996.\89\ This Congress has already passed S. 543, the 
Volunteer Protection Act of 1997 and it will soon be sent to 
the President.
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    \86\ Pub. L. No. 103-298, 108 Stat. 1552 (codified at 49 U.S.C. 
Sec. 40101 note (West Supp. 1995).
    \87\ Pub. L. No. 104-67, 109 Stat. 737 (placing limits on the 
conduct of private lawsuits under the Securities Act of 1933 and the 
Securities Exchange Act of 1934).
    \88\ Pub. L. No. 104-73, 109 Stat. 777 (extending Federal Tort 
Claims Act coverage to community, migrant, and homeless health 
centers).
    \89\ Pub. L. No. 104-210 (providing limited tort immunity to 
encourage the donation of food and grocery products to nonprofit 
organizations for distribution to needy individuals).
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  Federal product liability reform legislation is consistent 
with Congress' traditional regulation of matters affecting 
interstate commerce. It is also consistent with the trend since 
the mid-1960s toward increased federal involvement in consumer 
product safety, an inherent part of interstate commerce.\90\
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    \90\ See, e.g., Consumer Product Safety Act, 15 U.S.C.A. 
Sec. Sec. 2051 et seq. (1972); National Traffic and Motor Vehicle 
Safety Act, 15 U.S.C.A. Sec. Sec. 1381 et seq. (1966); Magnuson-Moss 
Warranty--Federal Trade Commission Improvement Act, 15 U.S.C. 
Sec. Sec. 2301-2312 (1982); Occupational Safety and Health (OSHA) Act, 
29 U.S.C.A. Sec. Sec. 651 et seq. (1970); Federal Hazardous Substances 
Act, 15 U.S.C.A. Sec. Sec. 1261 et seq. (1960); Poison Prevention 
Packaging Act, 15 U.S.C.A. Sec. Sec. 1471 et seq. (1970); Flammable 
Fabrics Act, 15 U.S.C.A. Sec. Sec. 1191 et seq. (1972); Medical Device 
Amendments of 1976, 21 U.S.C. Sec. 360c et seq. (1988 & Supp. 1993), to 
the Federal Food, Drug and Cosmetic Act of 1938, 21 U.S.C. Sec. 301 et 
seq. (1988 & Supp. 1993). See also Used Motor Vehicle Trade Regulation 
Rule, 16 C.F.R. Sec. 455 (1995); Odometer Disclosure Requirement, 49 
C.F.R. Sec. 580 (1995); 21 C.F.R. Sec. 101 et seq. (1995) (requiring 
uniform labeling of all packaged food products with ingredients and 
specific nutritional information). Ironically, professional consumer 
groups and others who advocate that product safety incentives provided 
by the tort system should be left to the states are also among the 
strongest proponents of federal regulation of matters affecting safety 
and health.
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  Congress is also empowered by the Due Process Clause of the 
Fourteenth Amendment to the United States Constitution to 
implement federal punitive damages reform.\91\ The Fourteenth 
Amendment provides that no State shall ``deprive any person of 
. . . liberty . . . without due process of law. . . .'' \92\ As 
described later, the United States Supreme Court has expressly 
indicated in recent opinions that both substantive and 
procedural due process protections, as expressed in the 
Fourteenth Amendment, apply to punitive damages.
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    \91\ See generally William Volz and Michael Fayz, Punitive Damages 
And The Due Process Clause: The Search For Constitutional Standards, 69 
U. Det. Mercy L. Rev. 459 (1992).
    \92\ U.S. Const. amend XIV.
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  Furthermore, the Supremacy Clause of the United States 
Constitution gives Congress the power to enact a federal law 
that replaces state law in the area of product liability.\93\ 
The fact that tort law is traditionally a matter of state law 
does not alter this rule, and it is expected that state and 
federal courts in product liability actions will interpret the 
Act in a manner consistent with the intent of Congress.
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    \93\ See U.S. Const., art. VI, cl. 2. Under the Supremacy Clause, 
state courts are bound to apply federal law. See Dice v. Akron, Canton 
& Youngstown R.R. Co., 342 U.S. 359 (1952) (Federal Employers' 
Liability Act). In addition, when there is a variance between State and 
Federal law, ``incompatible doctrines of local law must give ways to 
principles of federal . . . law.'' Local 174, Teamsters, Chauffeurs, 
Warehousemen and Helpers of Am. v. Lucas Flour Co., 369 U.S. 95, 102 
(1962) (National Labor Relations Act).
---------------------------------------------------------------------------
  Despite the long history of Congressional involvement in 
matters affecting interstate commerce, some opponents of 
federal product liability reform have recently questioned 
whether Congress has the authority to enact product liability 
reform legislation in light of the United States Supreme 
Court's 1995 decision in United States v. Lopez.\94\
---------------------------------------------------------------------------
    \94\ 111 S. Ct. 1624 (1995).
---------------------------------------------------------------------------
  In Lopez, the Court addressed the Gun-Free School Zones Act 
of 1990, which made it a federal offense for any individual 
knowingly to possess a firearm at a place that individual knows 
or has reasonable cause to believe, is a school zone.\95\ The 
Court determined that the Gun-Free School Zones Act exceeded 
Congress' Commerce Clause authority, since possession of a gun 
in a local school zone was not economic activity that 
substantially affected interstate commerce.\96\ The Lopez 
decision is completely distinguishable from those cases which 
directly support Congress' Commerce Clause authority over 
product liability.\97\ In those cases, federal regulation is 
upheld when it involves activities that arise out of or are 
connected with commercial transactions, which viewed in the 
aggregate, substantially affect interstate commerce. Not only 
was the law at issue in Lopez ``a criminal statute that by its 
terms has nothing to do with `commerce' or any sort of economic 
enterprise,'' \98\ it also sought to regulate purely local 
activity (possession of a firearm within 1,000 feet of a 
school) that lacked any close ``tie to interstate commerce.'' 
\99\ Product liability, in contrast, is without question a 
matter of interstate commerce and is, therefore, within the 
scope of Congress' Commerce Clause authority.\100\
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    \95\ See 18 U.S.C. Sec. 922(q)(1)(A).
    \96\ Lopez, 111 S. Ct. at 1633. See also U.S. Const., Art. I, 
Sec. 8, cl. 3. See generally Herbert Hovenkamp, Judicial Restraint And 
Constitutional Federalism: The Supreme Court's Lopez And Seminole Tribe 
Decisions, 96 Colum. L. Rev. 2213(1996).
    \97\ See, e.g., NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1 
(1937); United States v. Darby, 312 U.S. 100 (1941); Wickard v. 
Filburn, 317 U.S. 111 (1942).
    \98\ Lopez, 111 S. Ct. at 1630-31.
    \99\ Id. at 1633.
    \100\ Cf. United States v. NL Indus., Inc., 936 F. Supp. 545 (S.D. 
Ill. 1996) (Comprehensive Environmental Response, Compensation, and 
Liability Act (CERCLA), 42 U.S.C. Sec. 9601 et seq., held to be a valid 
exercise of Congress' Commerce Clause power). See generally Sherman 
Joyce, Product Liability Law In The Federal Arena, 19 Seattle U.L. Rev. 
421, 427 (1996). In the area of punitive damages, the Due Process 
Clause of the Fourteenth Amendment to the United States Constitution 
provides an additional basis for Congress to enact reform legislation.
---------------------------------------------------------------------------
  Furthermore, the fact that some cases involving product 
liability appear to relate to intrastate activity does not 
undercut Congress' Commerce Clause authority, because damages 
awards and legal costs associated with product liability create 
a hostile legal environment that discourages business activity. 
The United States Supreme Court's opinion in Hodel v. Virginia 
Surface Mining & Reclamation Association, Inc., 452 U.S. 264, 
277 (1981), is instructive:

          [T]his Court has made clear that the commerce power 
        extends not only to ``the use of interstate or foreign 
        commerce'' and to ``protection of the instrumentalities 
        of interstate commerce * * * or persons or things in 
        commerce, but also to activities affecting commerce.'' 
        Perez v. United States, 402 U.S. 146, 150 (1971). As we 
        explained in Fry v. United States, 421 U.S. 64842, 547 
        (1975), ``[e]ven activity that is purely intrastate in 
        character may be regulated by Congress, when the 
        activity, combined with like conduct by others 
        similarly situated, affects commerce among the States 
        or with foreign nations.

  Section 102(a)(1) provides that the Act governs any product 
liability action brought in any State or Federal court on any 
theory for harm caused by a product.
  Section 102(a)(2) provides that civil actions for commercial 
loss are not subject to the Act, but are governed by applicable 
commercial or contract law.
  The Act follows the traditional rule applied in the 
overwhelming majority of states by indicating that claims for 
loss or damage caused to a product itself, loss relating to a 
dispute over the value of a product, or consequential economic 
loss (i.e., loss of profits due to an inability to use the 
damaged product) should be governed exclusively by applicable 
state commercial or contract law. The leading case is Seeley v. 
White Motor Co., 403 P.2d 145 (Cal. 1965), which takes the 
position that damage to the product itself and commercial 
losses are remedies that should be decided under the Uniform 
Commercial Code.\101\
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    \101\ In such cases where a court determines that commercial losses 
are recoverable under a tort theory, such losses are to be included 
within the definition of ``harm'' in this title and this Act would 
apply.
---------------------------------------------------------------------------
  The United States Supreme Court strongly endorsed this 
principle in an admiralty case, East River Steamship Co. v. 
Transamerica Delaval, Inc., 476 U.S. 858 (1986). The American 
Law Institute's Restatement Of The Law Of Torts: Products 
Liability (Proposed Final Draft, April 1, 1997) states that 
product liability law applies only to ``harm to persons or 
property'' \102\ and also takes the position that ``[w]hen a 
product defect results in harm to the product itself, the law 
governing commercial transactions'' is the more appropriate 
source to resolve disputes between the parties, because such 
losses are, in essence, contract damages, not tort 
damages.\103\
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    \102\ See The American Law Institute, Restatement of the Law of 
Torts: Products Liability (Proposed Final Draft, April 1, 1997), 
Sec. 1.
    \103\ See id. Sec. 21, comment d. The new Restatement (Third) was 
approved by the body of the American Law Institute on May 20, 1997. See 
also Note, Economic Loss in Product Liability Jurisprudence, 66 Colum. 
L. Rev. 927 (1966). It is the Committee's intent that where recovery is 
not allowed because of a state statute of limitations defense or other 
defenses to contract liability, the Act will not create an independent 
cause of action. For example, a claim could not be brought under the 
Act if recovery under state contract or commercial law is barred 
because of the statute of limitations, contractual disclaimers or 
limitations of remedies.
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  Section 102(b) provides that the Act supersedes State law 
only to the extent that State law applies to an issue covered 
under the Act. Any issue that is not covered under the Act, 
including any standard of liability applicable to a 
manufacturer, is not subject to the Act, but is subject to 
other applicable State or Federal law.
  Section 102(c) lists a number of laws that are not superseded 
or affected by the Act. The Act does not waive or affect the 
defense of sovereign immunity of any State or of the United 
States; supersede or alter any Federal law; \104\ waive or 
affect any defense of sovereign immunity asserted by the United 
States; affect the applicability of any provision of chapter 97 
of title 28 of the United States Code; preempt state choice-of-
law rules with respect to claims brought by a foreign nation or 
citizen of a foreign nation; or affect the right of any court 
to transfer venue or to apply the law of a foreign nation or to 
dismiss a claim of a foreign nation or of a citizen of a 
foreign nation on the ground of inconvenient forum.
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    \104\ For example, the provisions of the Federal Tort Claims Act, 
28 U.S.C. Sec. Sec. 1346(b), 2671 et seq., the General Aviation 
Revitalization Act of 1994 (P.L. 103-298), the Oil Pollution Act of 
1990 (P.L. 101-380), the Trans Alaska Pipeline Authorization Act (P.L. 
93-153), and federal maritime law are not affected by the Act.
---------------------------------------------------------------------------
  The Act also does not supersede or modify any statutory or 
common law, including an action to abate a nuisance, that 
authorizes a person to institute an action for civil damages or 
civil penalties, cleanup costs, injunctions, restitution, cost 
recovery, punitive damages, or any other form of relief for 
remediation of the environment (as defined in section 101(8) of 
the Comprehensive Environmental Response, Compensation, and 
Liability Act of 1980, 42 U.S.C. 9601(8)).\105\ Such actions, 
which are brought against owners or operators of facilities as 
opposed to product manufacturers, involve separate policy 
considerations and relate to acts that are different from the 
acts for which this legislation provides rules of law. This 
provision makes clear that this Act does not apply to actions 
for damages resulting from releases into the environment, such 
as oil spills. The Act does apply to all product liability 
actions for harm, as defined in this title.
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    \105\ The Comprehensive Environmental Response, Compensation, and 
Liability Act of 1980 provides: ``'[E]nvironment' means (A) the 
navigable waters, the waters of the contiguous zone, and the ocean 
waters of which the natural resources are under the exclusive 
management authority of the United States under the Fishery 
Conservation and Management Act of 1976, and (B) any other surface 
water, ground water, drinking water supply, land surface or subsurface 
strata, or ambient air within the United States or under the 
jurisdiction of the United States.''
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  Section 102(d) makes it absolutely clear that civil actions 
for negligent entrustment or negligence in selling, leasing, or 
renting to an inappropriate party, are not subject to the Act, 
but are left to applicable State law. Specifically, the Act 
states: ``A civil action for negligent entrustment, or any 
action brought under a theory of dramshop or third-party 
liability arising out of the sale or provision of alcohol 
products to intoxicated persons or minors, shall be subject to 
the provisions of this Act but shall be subject to any 
applicable State law.'' This language has the support of 
Mothers Against Drunk Driving (MADD).
  Thus, the Act would not cover a gun dealer that knowingly 
sells a gun to a convicted felon or a ``straw man'' fronting 
for children or felons, or a bar owner that knowingly serves a 
drink to an obviously inebriated person, or a car rental agency 
that rents a car to a person who is obviously unfit to drive. 
These actions would not be covered by the Act, because they 
involve a claim that the product seller was negligent or 
reckless in selling to the purchaser. The action is not based 
on a product defect. Negligent entrustment actions would 
continue to be governed by State law.\106\
---------------------------------------------------------------------------
    \106\ For additional commentary explaining that the Act does not 
cover actions for negligent entrustment, see Cong. Record, March 21, 
1996, S2575-76.
---------------------------------------------------------------------------

Section 103--Liability rules applicable to product sellers, renters, 
        and lessors

  Section 103 is intended to bring legal fairness to product 
sellers and reduce costs to consumers. Currently, under the law 
in about twenty-nine states, product sellers who wholesale, 
sell, rent or lease a product are potentially liable for 
defects that they are neither aware of nor able to discover. 
They are drawn into the overwhelming majority of product 
liability cases. Product sellers, however, rarely pay the 
judgment, because in virtually all of the cases where any 
liability is present, the manufacturer is held responsible for 
the harm. Based on this showing, the seller receives 
contribution or indemnity from the manufacturer, and the 
manufacturer ultimately pays the damages.
  This approach generates substantial, unnecessary legal costs, 
which are passed on to consumers in the form of higher prices. 
A more efficient approach would be for the claimant to sue the 
product seller only if the product seller is directly at fault.
  Section 103 ``recognize[s] the unfairness and illogic of 
imposing `strict' liability upon retailers and wholesalers who 
neither participate in the design process for products they 
sell, nor create warnings or instructions for a product.'' 
\107\ Following the lead of approximately twenty-one states, 
\108\ Section 103 would hold product sellers, such as 
wholesalers and retailers, liable only if they are directly at 
fault for a harm (e.g, misassembled the product or failed to 
convey appropriate warnings to customers), unless the 
manufacturer of the product is out of business or otherwise not 
available to respond in a lawsuit. State ``product seller'' 
reform legislation has worked well; some state laws have 
existed for almost two decades and none have been repealed.
---------------------------------------------------------------------------
    \107\ M. Stuart Madden, The Vital Common Law: Its Role in a 
Statutory Age, 18 U. Ark. Little Rock L.J. 555, 570 (1996).
    \108\ See Colo. Rev. Stat. Sec. 13-21-402 (1987); Del. Code Ann. 
tit. 18 Sec. 7001 (1989); Ga. Code Ann. Sec. 51-1-11.1 (Supp. 1995); 
Idaho Code Sec. 6-1407 (1990); 735 ILCS 5/2-621 (1992) (formerly Ill. 
Rev. Stat. ch. 110, ] 2-621 (1989)); Iowa Code Sec. 613.18 (Supp. 
1995); Kan. Stat. Ann. Sec. 60-3306 (1994); Ky. Rev. Stat. Ann. Sec.  
411.340 (Michie/Bobbs-Merrill 1992); La. Rev. Stat. Ann. Sec. 2800.53 
(West 1991); Md. Cts. & Jud. Pro. Code Ann. Sec. 5-311 (1982); Mich. 
Comp. Laws Sec. 600.2947(6) (1996); Minn. Stat. Sec.  544.41 (West 
1988); Mo. Rev. Stat. Sec. 537.762 (1988); Neb. Rev. Stat. Sec. 25-
21,181 (1995); N.C. Gen. Stat. Sec. 99B-2 (1995); N.D. Cent. Code 
Sec. 28-01.3-04 (Supp. 1995); N.J. Stat. Ann. Sec. 2A:58C-9 (1995); 
Ohio Rev. Code Ann. Sec.  2307.78 (Anderson 1991); S.D. Codified Laws 
Sec. 20-9-9 (1995); Tenn. Code Ann. Sec. 29-28-106 (Supp. 1995); Wash. 
Rev. Code Sec. 7.72.040 (West 1992).
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  Section 103 assures that product sellers are not needlessly 
brought into product liability lawsuits. It also promotes sound 
public policy by encouraging product sellers to select the 
safest products for sale and to deal with responsible 
manufacturers who will be available and have assets in the 
United States in case a lawsuit arises because a product is 
defective. Finally, Section 103 assures that an injured 
consumer will always have available an avenue for 
recovery.\109\
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    \109\ Two reasons have been advanced for holding product sellers 
liable as if they were manufacturers. First, it has been argued that 
the rule promotes safety and reduces the risk of harm, because product 
sellers will seek to avoid liability by pressuring manufacturers to 
make safe products. See, e.g., Vandermark v. Ford Motor Co., 391 P.2d 
168 (1964). This rationale, however, fails to recognize that 
manufacturers will feel the same, if not greater, pressure to make safe 
products if they are sued directly for harms caused by their own 
product defects. Second, it has been argued that the rule is fair 
because a product seller who is held liable for harm caused by a 
manufacturer's defect can seek indemnity, see, e.g., Ark. Stat. Ann. 
Sec. 16-116-107, and thereby shift the cost of liability to the 
manufacturer who actually caused the harm. See, e.g., Hales v. Monroe, 
544 F.2d 331 (8th Cir. 1976); Litton Systems Inc. v. Shaw's Sales & 
Serv., Ltd., 579 P.2d 48 (Ariz. App. 1978). Data show that, in fact, 
product sellers account for less than five percent of product liability 
payments, because generally they are either dismissed or indemnified.
---------------------------------------------------------------------------
  The Act also provides relief for companies, such as car and 
truck rental firms, that rent or lease products. These 
companies are subject in ten states and the District of 
Columbia to liability for the tortious acts of their lessees 
and renters, even if the rental company is not negligent and 
there is no defect in the product.\110\ In this minority of 
states, a rental company can be held vicariously liable for the 
negligence of its customers simply because the company owns the 
product and has given permission for its use. Vicarious 
liability--liability without regard to fault--increases costs 
for rental customers nationwide and imposes an undue burden on 
interstate commerce.
---------------------------------------------------------------------------
    \110\ See Cal. Veh. Code Sec. 17150-51 (West 1971); Conn. Gen. 
Stat. Ann. Sec.  14-154a (West 1987); D.C. Code Ann. Sec. 40-408 
(1990); Fla. Stat. Ann. Sec.  324.021(9)(b) (Supp. 1994) (exempts 
leased vehicles); Idaho Code Sec. 49-2417 (1994); Iowa Code Sec.  
321.493 (1985); Me. Rev. Stat. Ann. 29-A Sec. 1652-53 (Supp. 1995); 
Mich. Comp. Laws Ann. Sec. 257.401 (West Supp. 1995); Minn. Stat. 
Sec. 170.54 (1986); N.Y. Veh. & Traf. Sec. 388 (McKinney 1986); R.I. 
Gen. Laws Sec. 31-33-6, 31-33-7 (1995).
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  Section 103 specifies when a product seller other than a 
manufacturer is responsible for harm caused by a product. 
Section 103(a)(1) provides that a product seller is only liable 
for harm proximately caused (A) by its own failure to exercise 
reasonable care with respect to the product, (B) by a product 
that fails to conform to an express warranty made by the 
product seller, or (C) the product seller's intentional 
wrongdoing. All three situations follow the rule that a product 
seller is responsible for the consequences of its own conduct.
  Section 103(a)(2) provides that, except for breach of express 
warranty, a product seller will not be liable if there was no 
reasonable opportunity to inspect the product, or if the 
inspection, in the exercise of reasonable care, would not have 
revealed the aspect of the product which allegedly caused the 
claimant's harm. For example, a seller may not have had a 
reasonable opportunity to discover a product defect if the 
product was prepackaged or if the product never passed through 
the seller's hands (e.g., a person may have held title to the 
product, but never had possession of the product).
    Section 103(b)(1) provides that a product seller shall be 
treated as the product manufacturer and shall be liable for the 
claimant's harm as if the product seller were the manufacturer 
if (A) the manufacturer is not subject to service of process 
under the laws of any state in which the action might have been 
brought by the claimant, or (B) the court determines that the 
claimant would be unable to enforce a judgment against the 
manufacturer. For example, a judgment would be unenforceable if 
the court finds that the manufacturer is bankrupt, insolvent, 
or otherwise unable to pay. A claimant may recover from the 
product seller for harms that were caused by the manufacturer 
if one of the two provisions applies, and if the claimant 
proves that the manufacturer would have been liable under state 
law.
    To prevent the situation where a claimant may not become 
aware until after the statute of limitations has expired that 
the manufacturer lacks funds sufficient to satisfy the 
judgment, section 103(b)(2) provides that, for purposes of this 
subsection only, the statute of limitations applicable to 
claims asserting liability of a product seller as a 
manufacturer shall be tolled from the date of the filing of a 
complaint against the manufacturer to the date that judgment is 
entered against the manufacturer. Although section 103(b) 
departs from the notion of individual responsibility for harms, 
it ensures that a claimant can recover from the product seller 
if he or she is unable to recover from the manufacturer 
responsible for the harm.
    Section 103(c)(1) provides that parties engaged in the 
business of renting or leasing products, other than a person 
excluded from the definition of ``product seller'' under 
section 101(13)(B), shall be subject to liability in a product 
liability action in a manner similar to product sellers under 
section 103(a).
    Section 103(c)(1) also preempts state vicarious liability 
laws, which hold the owner of a product, such as a motor 
vehicle, liable for the negligence of a user of the product, 
regardless of whether the owner of the product was 
negligent.\111\ The Act provides that any person engaged in the 
business of renting or leasing a product, including finance 
lessors, shall not be liable to a claimant for the tortious act 
of another solely by reason of ownership of the product.
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    \111\ The Committee does not intend that section 103(c) preempt 
state minimum financial responsibility laws for motor vehicles. This 
subsection does not relieve the owner of any motor vehicle of 
responsibility to insure the vehicle to the amounts required under 
appropriate state law.
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    Section 103(c)(2) provides that, for purposes of section 
103(c)(1) and for determining the applicability of this title 
to any person subject to section 103(c)(1), the term ``product 
liability action'' means a civil action brought on any theory 
for harm caused by a product or product use.

Section 104--Defenses based on claimant's use of alcohol or drugs

    In about eleven states, a person who is inebriated or under 
the influence of illegal drugs can recover in a product 
liability action, even though that illegal condition was a 
substantial cause of the harm.\112\ The Act will put an end to 
that situation if the defendant proves that the plaintiff was 
under the influence of intoxicating alcohol or any drug when 
the accident or other event which resulted in such claimant's 
harm occurred, and the defendant shows that such condition was 
the cause of the accident or other event. The provision is 
based on a statute in the State of Washington.\113\
---------------------------------------------------------------------------
    \112\ The majority of states have laws which do not permit recovery 
in this situation. Four states, Alabama, Maryland, North Carolina, and 
Virginia, and the District of Columbia, continue to recognize 
contributory negligence as an absolute defense. Thirty-two states have 
adopted some form of modified comparative fault standard: Arkansas, 
Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, 
Maine, Massachusetts, Michigan, Minnesota, Montana, Nebraska, Nevada, 
New Hampshire, New Jersey, North Dakota, Ohio, Oklahoma, Oregon, 
Pennsylvania, South Carolina, South Dakota, Texas, Tennessee, Utah, 
Vermont, West Virginia, Wisconsin and Wyoming.
    \113\ See Wash. Rev. Code Ann. Sec. 5.40.060 (West 1996).
---------------------------------------------------------------------------
    This defense implements sound public policy. It tells 
persons that if they abuse alcohol or drugs they will not be 
rewarded through the product liability system. This rule will 
encourage persons to take responsibility for their own safety. 
It also relieves ordinary consumers from the burden of paying 
more for products to subsidize the illegal or imprudent conduct 
of others. It will discourage drunk driving, a major cause of 
death on our nation's highways.
    Section 104(a) establishes a complete defense for any 
defendant in a product liability action if the defendant can 
prove that the claimant was under the influence of intoxicating 
alcohol or any drug when the accident or other event which 
resulted in such claimant's harm occurred, and the claimant, as 
a result of such condition, was more than fifty percent 
responsible for such accident or other event.\114\
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    \114\ This provision only addresses situations in which, currently, 
a person could bring a successful claim when such person was more than 
fifty percent responsible for their own harm due to abuse of drugs or 
alcohol. If a state has pure comparative fault as its general rule of 
tort law, this provision will prevail if the claimant was under the 
influence of alcohol or any drug and such condition was more than fifty 
percent responsible for the harm. The Act is not preemptive if a state 
retains the contributory negligence defense and believes that a 
person's claim should be barred if the person's fault in any way 
contributed to his or her harm.
---------------------------------------------------------------------------
    Section 104(b)(1) provides that the determination of 
whether a person was intoxicated or was under the influence of 
intoxicating alcohol or drugs shall be made pursuant to 
applicable state law. For example, if applicable state law 
provides that a particular amount of alcohol in a person's 
blood is evidence that the person was under the influence of 
intoxicating alcohol, that standard shall apply.
    Section 104(b)(2) provides that the term ``drug'' means any 
controlled substance as defined in the Controlled Substances 
Act (21 U.S.C. 802(6)) that was not legally prescribed for use 
by the claimant or that was taken by the claimant other than in 
accordance with the terms of a lawfully issued prescription.

Section 105--Reduction for misuse or alteration of product

    This section addresses the situation where a product has 
been used in an manner unintended by the manufacturer either 
through misuse or alteration of the product. When a product is 
misused or altered, this section allows for the reduction of 
damages when liability or recovery of damages otherwise exists 
under Federal or State law. This provision avoids placing the 
cost of that misuse or alteration on the manufacturer and, 
ultimately, onto ordinary, responsible consumers. The section 
places emphasis on basic fairness and individual 
responsibility. This common sense provision is supported by two 
strong rationales: (1) liability law should be based upon 
individual responsibility and should encourage the safe use of 
products, and (2) consumers should not be forced to pay more 
for products due to others' misuse or alteration of products.
    Section 105(a)(1) provides that, in a product liability 
action, the damages for which a defendant is otherwise liable 
under Federal or State law shall be reduced by the percentage 
of responsibility for the harm to the claimant attributable to 
misuse or alteration of a product by any person. The defendant 
must establish that this percentage of the harm was proximately 
caused by a use or alteration of a product either (A) in 
violation of, or contrary to, the express warnings or 
instructions of the defendant, if the warnings or instructions 
are determined to be adequate pursuant to applicable State law, 
or (B) involved a risk of harm relating to misuse or alteration 
which was known or should have been known by the ordinary 
person who uses or consumes the product with the knowledge 
common to the class of persons who used or would be reasonably 
anticipated to use the product.
    The phrase ``otherwise liable under Federal or State law'' 
makes clear that this section does not create liability under 
State law that does not otherwise exist. Nor does this section 
provide for the award of damages that presently are barred by 
State law. Rather, this section allows for the reduction of 
damages based upon the misuse or alteration of a product by an 
individual where liability otherwise exists and/or where 
recovery is not otherwise barred. When the defendant is 
``otherwise liable under Federal or State law'',the operation 
of this section holds an individual accountable for any harm 
resulting from the misuse or alteration of a product and 
apportions damages between or among the parties resulting from 
this misuse or alteration where existing State law does not 
already impose such apportioning of damages.
    For example, if under State law, the defendant has no 
liability under the ``common knowledge'' doctrine, then this 
section would not change that result.\115\ Under the ``common 
knowledge'' doctrine, the defendant is not held responsible to 
the plaintiff for injury caused by the plaintiff's misuse of a 
product that is commonly known by ordinary consumers to be 
dangerous. Since in this example, section 105 does not change 
the existing State law which determines liability--the common 
knowledge doctrine--State law is not preempted by the Act.
---------------------------------------------------------------------------
    \115\ See Cong. Record, May 9, 1995, at S6329-30. See also Friar v. 
Caterpillar, Inc., 529 So. 2d 509 (La. App. 1988); Colson v. Allied 
Products Corp., 640 F.2d. 5 (5th Cir. 1981); Restatement (Second) of 
Torts Sec. 402A cmts. i and j (1965).
---------------------------------------------------------------------------
    Two other instances where this section does not effect 
State law are noteworthy. If a State has the contributory 
negligence defense which bars a person from recovering any 
damages if that person's fault in any way contributed to his or 
her harm, then State law will continue to apply to those 
product liability actions without interruption by this section. 
The same result occurs if a State has adopted a ``modified'' 
form of comparative fault which bars a person from recovering 
any damages depending upon the percentage of fault for the harm 
attributed to that person, and that percentage of fault is met.
    Section 105(a)(2) states that a use of a product that is 
intended by the manufacturer of the product does not constitute 
a misuse or alteration of the product.
    Section 105(b) provides that, notwithstanding subsection 
(a), the amount of damages for which a defendant is otherwise 
liable under State law shall not be reduced by the application 
of section 105 with respect to the conduct of any employer or 
coemployee of the plaintiff who is, under applicable State law 
concerning workplace injuries, immune from being subject to an 
action by the claimant.

Section 106--Uniform time limitations on liability

    All civil actions governed by the Act are subject to a 
nationally uniform ``discovery rule'' statute of limitations. A 
discovery rule favors plaintiffs because the statute of 
limitations only begins to run once the claimant discovers, or 
in the exercise of reasonable care should have discovered, both 
the harm that is the subject of the action and the cause of the 
harm. The Act also establishes a nationally uniform statute of 
repose of 18 years for product liability actions. The statute 
of repose establishes the time period during which a 
manufacturer or product seller may be held responsible for harm 
allegedly caused by a product. The statute of repose does not 
apply to cases involving a ``toxic harm'' (i.e., a latent 
physical injury).

                         Statute of Limitations

    All states have statutes of limitations that apply to 
product liability actions.\116\ A statute of limitations 
specifies that time, following some triggering event, within 
which the claimant must file his or her action. Failure to file 
within the specified time bars the claim.
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    \116\ Under present law, different statutes of limitations apply in 
product liability actions depending upon the particular theory of the 
case. For example, a statute of limitations applicable in tort may be 
the rule in an action based on negligence, while a statute of 
limitations applicable in contract may be the rule in an action based 
on breach of warranty. The Act will establish one uniform, national 
statute of limitations for all product liability actions. Moreover, the 
Act will provide a uniform rule, vastly improving the current patchwork 
state system to the benefit of all who use, sell, and make products in 
the United States.
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    In some states, such as Virginia, the starting point for a 
person to bring a claim begins to run at the ``time of 
injury.'' \117\ When an injury caused by a product is immediate 
and traumatic, this date is easy to determine. The claimant 
generally knows of his or her harm and the cause of the harm at 
the time of the injury. Where the harm is latent, however, the 
claimant may not know that he or she has been harmed or the 
cause of that harm. In these situations, a ``time of injury'' 
statute of limitations may expire and bar a claim before the 
claimant is even aware of the injury and a potential claim.
---------------------------------------------------------------------------
    \117\ See, e.g., Hawks v. DeHart, 146 S.E.2d 187 (Va. 1966). See 
also Wojcik v. Almase, 451 N.E.2d 336 (Ind. App. 1983); New Mexico 
Elec. Serv. Co. v. Montanez, 551 P.2d 634 (N.M. 1976).
---------------------------------------------------------------------------
    In response to this problem, some states have adopted a 
rule under which the limitations period begins to run when the 
claimant discovers the harm.\118\ Even this rule may be unfair, 
however, because the claimant may not discover the actual cause 
of the harm until some time after the harm is discovered. The 
statute of limitations may expire before the claimant can 
reasonably discover both the harm and its cause.\119\
---------------------------------------------------------------------------
    \118\ See, e.g., Conn. Gen. Stat. 52-577(a) (1983); Witherall v. 
Weimer, 421 N.E.2d 869 (Ill. 1981); Hansen v. A.H. Robins, Inc., 335 
N.W.2d 578 (Wis. 1983).
    \119\ See Koepnick v. Aequitron Medical, Inc., No. 921-1975 (6th 
Cir. Aug. 3, 1993). As one judge said, this follows the logic of 
``topsy-turvy land'' where one can ``be divorced before [he] ever . . . 
marr[ies], or harvest a crop never planted, or burn down a house never 
built, or miss a train running on a non-existent railroad.'' Dincher v. 
Marlin Firearms Co., 198 F.2d 821, 823 (2d Cir. 1952) (Frank J., 
dissenting).
---------------------------------------------------------------------------
    In contrast, the Act provides that the two-year period 
within which a plaintiff may bring a product liability action 
starts on the date that the claimant, or if the claimant has 
died the person entitled to bring the claim, knows, or in the 
exercise of reasonable care should know, both that a harm has 
occurred and the cause of that harm. Thus, the Act will reduce 
the number of plaintiffs who, having otherwise meritorious 
claims, would be denied justice solely on the basis of their 
choice of the state in which they choose to file a claim.
    The Act will also alleviate the potential hardship caused 
by the statutes of limitations periods contained in state 
wrongful death statutes. Most of these statutes bar claims a 
certain number of years after a death. The Act would preserve 
these claims for the ``discovery'' period, i.e., until two 
years after a surviving relative discovered or in the exercise 
of reasonable care should have discovered, the cause of his or 
her loved one's death. This rule would modify existing state 
law in a positive way for claimants.
    Section 106(a)(1) provides that, in any civil action 
brought under the Act, the complaint must be filed within two 
years of the date the claimant discovers or, in the exercise of 
reasonable care, should have discovered, (A) the harm that is 
the subject of the action, and (B) the cause of the harm. 
Product liability actions are barred if filed after this time 
period.
    Section 106(a)(2) provides that if a person with a product 
liability claim has a legal disability as determined under 
applicable law (e.g., the person is a minor or is insane), the 
person may file a product liability action not later than two 
years after the date on which the legal disability ceases.
    Section 106(a)(3) provides that if the commencement of a 
product liability action is stayed or enjoined, the running of 
the statute of limitations shall be suspended until the end of 
the period that the stay or injunction is in effect.
    This section must be read in light of section 303 to 
accurately determine its applicability. This section is 
applicable to harms that are discovered or, in exercise of 
reasonable care, should have been discovered after the date of 
enactment of this law although the harm that is the subject of 
the action or the conduct that caused the harm may have 
occurred before such date of enactment.

                           Statute of Repose

    For over a decade and a half, numerous small business 
owners have testified about the effect of liability for old 
products. The products have been used safely for a substantial 
period of time and manufacturers are willing to stand behind 
warranties they made about how long a product will last. 
Nevertheless, as a result of ``long tail'' liability, some of 
these companies are, by no fault of their own, falling behind 
competitively, because they are disadvantaged by liability 
rules that create an artificial preference for newer, mostly 
foreign, industries.
    For example, Charles E. Gilbert, Jr., President of 
Cincinnati Gilbert Machine Tool Company, testified before the 
House JudiciaryCommittee in February 1995 that his company is 
subject to liability for machine tools manufactured over 100 years ago. 
He noted these older products usually pass through several owners, each 
making adjustments and changes to suit their own needs, until 
eventually the product causes harm, through no fault of the 
manufacturer, and a lawsuit ensues. Cincinnati Gilbert, like most 
manufacturers, almost always wins these lawsuits concerning older 
products, yet it must invest time and resources into legal costs. 
Excess legal costs sap international competitiveness, retard job 
growth, and limit research and development.
  Principal competitors of the United States have enacted 
legislation recognizing that, at some point, an outer time 
limit on litigation is reasonable and necessary. The new 
Japanese product liability law and the European Community 
Product Liability Directive (which has also been adopted by 
Australia) each have a ten-year statute of repose which covers 
all products.
  Statutes of repose reflect the public policy that, after the 
passage of a reasonable length of time, manufacturers should be 
free from the burdens of disruptive litigation over products 
that are alleged to cause harm after many years of safe 
operation and use.
  In the United States, approximately 19 states have enacted 
product liability statutes of repose, ranging from six years to 
a maximum of fifteen years; the typical repose period is 
between ten and twelve years.\120\
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    \120\ Statutes of repose exist in the following states: Ark. Code 
Ann. Sec.  16-116-1059(c) (Michie 1987) (use of a product beyond its 
``anticipated life'' may be considered as evidence of fault by the 
consumer); Colo. Rev. Stat. Sec. 13-21-403 (1987) (rebuttable 
presumption that the product is not defective after 10 years); Colo. 
Rev. Stat. Sec. 13-80-107 (1987) (7 years for new manufacturing 
equipment); Conn. Gen. Stat. Sec. 52-577a (1991 & Supp. 1995) (10 
years); Ga. Code Ann. Sec. 51-1-11(b)(2) (1982 & Supp. 1995) (10 
years); Idaho Code Sec. 6-1403(2) (1990) (``useful safe life'' of 
product, rebuttable presumption of 10 years); Ill. Ann. Stat. Sec. 735, 
5/13-213(b) (Smith-Hurd 1992) (12 years from date of first sale, or 10 
years from date of sale to first user, whichever is shorter); Ind. Code 
Ann. Sec. 33-1-1.5-5(b) Burns 1992) (10 years); Iowa H.B. 693 (signed 
by Governor on May 29, 1997)(15 years); Kan. Stat. Ann. Sec. 60-3303 
(1994) (``useful safe life'' of product, rebuttable presumption of 10 
years); Ky. Rev. Stat. Ann. Sec. 411.310(1) (Michie/Bobbs-Merrill 1992) 
(rebuttable presumption that product is not defective if harm occurred 
five years after sale to first consumer or eight years after 
manufacture); Mich. Stat. Ann. Sec. 27A.5805 (Callaghan 1986 & Supp. 
1995) (if product in use for 10 years, plaintiff must prove prima facie 
case without benefit of any presumption); Minn. Stat. Ann. Sec.  604.03 
(West 1988) (``useful life'' of product); Neb. Rev. Stat. Sec. 25-224 
(1995) (10 years); N.D. Cent. Code Sec. 28-01.3-08(1) (Supp. 1995) (10 
years); Or. Rev. Stat. Sec. 30.905(1) (1995) (8 years); Tenn. Code Ann. 
Sec. 29-28-103(a) (1988 & Supp. 1995) (10 years); Tex. Civ. Prac. & 
Rem. Code Ann. Sec. 16.012 (West Supp. 1995) (15 years for non-
agricultural manufacturing equipment); Wash. Rev. Code Sec. 7.72.060(1) 
(West 1992) (``useful safe life'' of product, rebuttable presumption of 
12 years); Ohio Rev. Code Ann. Sec. Sec. 2125.02(D)(2) and 
2305.10(c)(Banks-Baldwin 1997) (15 years).
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  At the federal level, on August 17, 1994, President Clinton 
signed the General Aviation Revitalization Act of 1994 (GARA), 
which created a uniform, federal eighteen-year statute of 
repose for general aviation aircraft.\121\ President Clinton 
has pointed with pride to his support for GARA. In a 
presidential debate held on October 6, 1996, President Clinton 
said: ``I signed a tort reform bill that dealt with civil 
aviation a couple of years ago. I proved that I will sign 
reasonable tort reform.''
---------------------------------------------------------------------------
    \121\ See General Aircraft Revitalization Act of 1994, Pub. L. No. 
103-298, 108 Stat. 1552 (codified at 49 U.S.C. Sec. 40101 note (West 
Supp. 1995)).
---------------------------------------------------------------------------
  On Thursday, March 6, 1997, the Consumer Affairs Subcommittee 
held a hearing to explore the positive effects resulting from 
GARA. The hearing established that GARA has worked very 
well.\122\ GARA is a sound model for a broad federal product 
liability statute of repose.
---------------------------------------------------------------------------
    \122\ See generally Geoffrey A. Campbell, Study: Business Booms 
After Tort Reform Enacted, ABA J., at 28 (Jan. 1996) (``The light 
aircraft industry is taking off as reduced liability encourages 
technological innovation.''
---------------------------------------------------------------------------
  John Moore, Senior Vice President of Human Resources for 
Cessna Aircraft Company, testified that Cessna withdrew from 
the single engine aircraft in 1986. At that time, $80,000 of 
every aircraft manufactured by Cessna went to pay product 
liability costs. Prior to the enactment of GARA, Cessna CEO 
Russ Meyer promised that if Congress enacted product liability 
legislation to protect the general aviation industry, Cessna 
would resume manufacturing small aircraft. True to his word, 
Cessna is back in the single engine aircraft business. It has 
invested $55 million in facilities and equipment. Presently, 
its small aircraft division has over 650 employees, with plans 
to double employment in 1998. Cessna expects $100 million in 
sales in 1997 and projects $350 to 400 million in sales by the 
year 2000.
  John S. Yodice, General Counsel of the Aircraft Owners and 
Pilots Association, an association that represents 340,000 
aviators, testified that, prior to GARA, his members realized 
that they were paying higher costs for aircraft, because of 
product liability costs. Therefore, they supported GARA. He 
reported that GARA has created a renewed spirit among members 
of the general aviation community. Significantly, his group has 
not heard of any complaints from consumers about GARA.
  Paul Newman, Chief Financial Officer of the New Piper 
Aircraft Corporation, testified that GARA permitted New Piper 
to emerge from a Chapter 11 bankruptcy that had idled 1,000 
workers. As a direct result of GARA, Piper has emerged from 
bankruptcy liquidation and is now producing planes and has 650 
employees.
  Bradley Mottier, Senior Vice President of Unison Industries 
of Jacksonville, Florida, a supplier of aircraft ignition 
systems, said the GARA has encouraged the company to market 
components that improve pilot safety. Before GARA, because of 
product liability concerns, Unison held back from introducing a 
state of the art digital ignition system which it had developed 
in 1986. With the passage of GARA, the safer digital ignition 
system is now available to pilots and their passengers. Next 
year, Unison Industries plans to introduce a laser operated 
starting system.
  The Subcommittee also heard from John Peterson of the 
Montgomery County Action Council of Coffeyville, Kansas, who 
testified about the positive ``ripple effects'' of GARA on 
communities. Cessna's new small aircraft plant is located in 
his county. Mr. Peterson said that, prior to 1995, Montgomery 
County ranked ninety-eighth out of 105 Kansas counties in 
economic indicators. Its population was dropping, employment 
was on the decline, per capita income was down, and property 
values were depressed. Economic growth since the construction 
of the plant began has exceeded all predictions made in a study 
the county prepared in 1995. New housing starts are up 260 
percent, the value of new homes has doubled, retail sales are 
up five percent, per capita income has nearly doubled, and 
nearly 500 people per year are moving into the county.
  Consistent with GARA, the Act provides a uniform national 18-
year statute of repose for product liability actions. This 
period of time is longer than any of the existing state 
statutes of repose that establish a fixed period of time.\123\ 
This provision, therefore, expands the period of time in which 
plaintiffs can bring actions in many states. For example, it 
more than doubles the period in which a plaintiff in Oregon 
(which has an 8-year statute of repose) can bring an action; it 
increases by 80% the period of time in which a plaintiff in 
North Dakota (which has a 10-year statute of repose) can bring 
an action.
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    \123\ Some state statutes of repose are tied to ``useful safe 
life'' or provide rebuttable presumptions, rather than fixed periods of 
repose.
---------------------------------------------------------------------------
  The statute of repose excepts products alleged to cause 
``toxic harm.'' Some expressed concern about products that may 
cause physical injuries that do not manifest themselves for 
many years after a person is first exposed to a product. The 
exception for toxic harm, therefore, is intended to address the 
unfairness that could result if an individual were injured by a 
product during the repose period, but the harm did not manifest 
itself until after that period.
  The statute of repose does not immediately bar claimants or 
potential claimants with existing causes of action from 
bringing lawsuits, regardless of when the products on which the 
suits may be based were sold. The Act contains a transitional 
provision that extends for one year the period for bringing 
actions that would otherwise be barred. Thus, for example, if 
the statute of repose would shorten the period of time during 
which a product liability action could be otherwise brought 
under State law, an individual injured by a product 
manufactured 50 or even 100 years ago would have an additional 
year after the date of enactment of the Act to bring an action.
  Section 106(b)(1) provides that any product liability action 
alleging harm, which is not toxic harm, caused by any product 
is barred unless the complaint is served and filed within 
eighteen years of the time of delivery of the product to its 
first purchaser or lessee.
  Section 106(b)(2)(A) excludes motor vehicles, vessels, 
aircraft, and trains from the statute of repose provision where 
such products are used primarily to transport passengers for 
hire. Otherwise, these products are subject to the rule set 
forth in section 106(b)(1).
  Section 106(b)(2)(B) extends the repose period in situations 
where a defendant has made an express warranty in writing as to 
the safety of its product. If the warranty extends beyond the 
18-year time limitation in the Act, the repose limitation goes 
into effect at the expiration of that warranty.

                         Transitional Provision

  Section 106(c) provides that if any provision of sections 
106(a) or 106(b) of the Act would shorten the period during 
which a product liability action could otherwise be brought 
pursuant to another provision of law, the claimant may, 
notwithstanding sections 106(a) or 106(b), bring an action 
within one year after the effective date of the Act. This 
exception is intended to prevent unfair situations from arising 
as a result of the application of the time limitations set 
forth in the Act.

Section 107--Alternative dispute resolution procedures

  The legal system is inaccessible to many product liability 
claimants, because of its complexity and expense. The Act 
establishes a scheme for expedited settlement of product 
liability claims in the initial stages of litigation. The 
provision on alternative dispute resolution (ADR) procedures 
could reduce the delays, excessive transaction costs, and 
uncertainties associated with product liability claims. It will 
also encourage more speedy resolution of product liability 
disputes so that compensation reaches injured persons more 
quickly.
  The Act allows either party to a product liability dispute to 
offer to proceed pursuant to any voluntary and nonbinding ADR 
procedures established in the state where the action is brought 
or under the rules of the court in which the action is 
maintained.\124\ The Act requires the offer to proceed to ADR 
to be made within 60 days after service of the initial 
complaint or the applicable deadline for a responsive pleading, 
whichever is later. There is no penalty on a party who refuses 
to proceed to ADR.
---------------------------------------------------------------------------
    \124\ ``The ABA strongly supports voluntary ADR.'' American Bar 
Association, An Agenda for Justice: ABA Perspectives on Criminal and 
Civil Justice Issues 88 (July 1996). Nonbinding ADR procedures do not 
violate the right to jury trial found in the Seventh Amendment. See 
Kimbrough v. Holiday Inn, 478 F. Supp. 566 (E.D. Pa. 1979).
---------------------------------------------------------------------------
  The ADR provision will be especially beneficial for persons 
with smaller claims, because these persons are frequently 
unable to obtain lawyers to represent them in expensive 
courtroom litigation. Such plaintiffs, however, can more easily 
secure attorneys to represent them in ADR proceedings, which 
are free of cumbersome rules of procedure and evidence and do 
not require the use of expensive expert witnesses. Moreover, 
many plaintiffs desire to and are capable of representing 
themselves in ADR proceedings.
  William Fry, Executive Director of HALT, a nonprofit legal 
reform organization supported by 70,000 individual members 
nationwide, testified at an April 3, 1995, Subcommittee hearing 
that ADR mechanisms are ``a way to lower costs, simplify 
procedures and achieve fairness through avoidance of technical 
rules of law.'' \125\ HALT supports the use of alternative 
dispute resolution mechanisms to permit consumers to handle 
their own legal affairs.
---------------------------------------------------------------------------
    \125\ S. Hrg. 104-435 at 86.
---------------------------------------------------------------------------
  Section 107 also meets the spirit of President Clinton's 
February 5, 1996, Executive Order 12988, which encouraged 
counsel participating in civil litigation on behalf of the 
United States Government to make ``broader and effective use of 
informal and formal ADR methods.''
  Section 107(a) provides that either a claimant or a defendant 
may offer to proceed pursuant to a voluntary and nonbinding ADR 
procedure established in the state where the action is brought 
or under the rules of the court in which the action is 
maintained. The offer to proceed to ADR must be made within 
sixty days after service of the initial complaint or the 
applicable deadline for a responsive pleading, whichever is 
later.
  Section 107(b) provides that not later than ten days after 
the service of an offer to proceed under an ADR procedure the 
offeree shall file a written notice accepting or rejecting the 
offer.
  Section 107(c) provides that the court may, upon motion by an 
offeree made prior to the expiration of the ten-day period 
specified in section 107(b), extend the period for filing a 
written notice under that subsection for a period of not more 
than sixty days after the date of expiration of the period 
specified in section 107(b). Discovery may be permitted during 
this period.

Section 108--Uniform standards for award of punitive damages

  The United States Supreme Court has observed that punitive 
damages have ``run wild'' in the United States, jeopardizing 
fundamental constitutional rights.\126\ The Court has held that 
the Due Process Clause of the Fourteenth Amendment imposes a 
substantive limit on the size of punitive damages awards.\127\ 
It has also held that the Constitution provides procedural 
limits on when and how punitive damages may be awarded.\128\
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    \126\ Pacific Mutual Life Ins. Co. v. Haslip, 499 U.S. 1, 18 
(1991).
    \127\ See BMW of N. America, Inc. v. Gore, 116 S. Ct. 1589, 1604 
(1996). See also TXO Prod. Corp. v. Alliance Resources Corp., 509 U.S. 
443, 458 (1993); Pacific Mutual Life Ins. Co., 499 U.S. at 23-24; Honda 
Motor Corp., Ltd. v. Oberg, 114 S. Ct. 2331, 2340 (1994). Cf. Pulla v. 
Amoco Oil Co., 72 F.3d 648, 661 (8th Cir. 1995) (opinion by retired 
Supreme Court Justice Byron White) (striking down punitive damages 
award as ``excessive, unreasonable and violative of due process'').
    \128\ In Honda Motor Corp., 114 S. Ct. at 2340, a case involving an 
all terrain vehicle that flipped over when an inebriated plaintiff 
tried to drive it up a hill, the Court struck down a punitive damages 
award on the ground that Oregon law violated due process, because it 
did not provide an opportunity for meaningful appellate review of the 
size of punitive damages awards.
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             Duty Of Congress To Protect Due Process Rights

  Congress and the Supreme Court share responsibility for 
guarding due process rights. This principle is expressly 
reflected in both the ``Findings'' and ``Purposes'' of the 
Act.\129\ Some Justices have made the practical observation 
that the Supreme Court cannot fashion highly specific rules in 
the area of punitive damages, and therefore have ``invited'' 
remedial legislation.\130\ It is the duty of Congress to 
respond to the Court's concern about punitive damages that are 
``run wild'' by enacting meaningful reforms that will safeguard 
constitutionally protected due process rights and remove 
substantial barriers to interstate commerce.
---------------------------------------------------------------------------
    \129\ See Section 2(a)(9) (``[I]t is the constitutional role of the 
national government to remove barriers to interstate commerce and to 
protect due process rights''); section 2(b) (stating that a purpose of 
the Act is ``to uphold constitutionally protected due process rights'' 
of punitive damages defendants).
    \130\ See TXO Prod. Corp., 509 U.S. at 2727 (Scalia and Thomas, 
J.J., concurring in the judgment). See also Richard Neely, Needed: 
Legal Standards on Punitive Damages, The Wall St. J., Wed., July 14, 
1993, at A13 (expressing belief that the Supreme Court's ``refusal'' to 
set clear standards for awarding punitive damages in civil cases is ``a 
disappointment to those of us who believe that large punitive damages 
awards are retarding research, development, product introduction and 
job creation.'' Justice Neely delivered the opinion in the TXO case 
when it was considered before the West Virginia Supreme Court on its 
way to the United States Supreme Court).
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 Both The Due Process Clause Of Fourteenth Amendment And The Commerce 
    Clause Of The United States Constitution Empower Congress To Act

  Congress is empowered by the Due Process Clause of the 
Fourteenth Amendment to the United States Constitution to 
implement federal punitive damages reforms.\131\ The Fourteenth 
Amendment provides that no State shall ``deprive any person of 
. . . liberty . . . without due process of law. . . .'' \132\ 
As indicated above, the Supreme Court has expressly indicated 
that substantive and procedural due process protections, as 
expressed in the Fourteenth Amendment, apply to punitive 
damages cases.
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    \131\ See generally William Volz and Michael Fayz, Punitive Damages 
And The Due Process Clause: The Search For Constitutional Standards, 69 
U. Det. Mercy L. Rev. 459 (1992).
    \132\ U.S. Const. amend XIV.
---------------------------------------------------------------------------
  Furthermore, Section Five of the Fourteenth Amendment 
provides that ``Congress shall have power to enforce, by 
appropriate legislation, the provisions of th[at] article.'' 
\133\ The Supreme Court has interpreted this language as a 
conveyance of a very broad power, giving Congress ``the same 
broad powers expressed in the necessary and proper clause.'' 
\134\ Unless prohibited by some other provision of the 
Constitution, it is within the power of Congress to enact 
``[w]hatever legislation is appropriate, that is, adapted to 
carry out the objects the Amendments have in view.'' \135\ 
Federal legislation to reform punitive damages falls squarely 
within the ``broad power'' of Congress to implement rules which 
``carry out'' both the letter and spirit of the Fourteenth 
Amendment.
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    \133\ U.S. Const. amend XIV, Sec.  5.
    \134\ Katzenbach v. Morgan, 384 U.S. 641, 650 (1966).
    \135\ Ex Parte Virginia, 100 U.S. 339, 345 (1879). The power 
conferred to Congress by Section Five of the Fourteenth Amendment has 
not been dormant. Recently, Congress used this power to enact the 
Religious Freedom Restoration Act of 1993, 42 U.S.C. Sec. 22000bb et. 
seq. (Supp. 1995).
---------------------------------------------------------------------------
  Congress also has the power under the Commerce Clause of the 
United States Constitution to enact federal reform legislation 
concerning punitive damages. Article I, Section Eight of the 
Constitution provides that Congress shall have the power ``To 
regulate Commerce . . . among the several States. . . .'' \136\ 
This power extends to interstate and intrastate activities that 
affect interstate commerce.\137\ Punitive damages awards affect 
interstate commerce and, unquestionably, fall within the scope 
of activities that can be regulated by Congress.
---------------------------------------------------------------------------
    \136\ U.S. Const. Art. 1, Sec.  8, cl. 3.
    \137\ See, e.g., Federal Energy Regulatory Comm'n v. Mississippi, 
456 U.S. 742 (1982); Fry v. United States, 421 U.S. 64842 (1976); 
Katzenbach v. McClung, 379 U.S. 294 (1964); Wickard v. Filburn, 317 
U.S. 111 (1942).
---------------------------------------------------------------------------

               Federal Punitive Damages Reform Is Needed

  Punitive damages are quasi-criminal in nature; they are 
awarded to punish, not to compensate for harm.\138\ This fact 
is often obscured by opponents of punitive damage reform. 
Punitive damages developed out of English law to aid the 
criminal law. The focus was, and should be on, conduct so 
deserving of condemnation that it should be subject to criminal 
punishment. Punitive damages are not intended to compensate 
people to ``make them whole'' for something they have lost; 
that purpose is accomplished by compensatory damages, which 
provide compensation for both economic losses (e.g., lost 
wages, medical expenses, substitute domestic services) and 
noneconomic losses (e.g., ``pain and suffering''). 
Nevertheless, unlike the criminal law system, in many states 
there are virtually no standards for when punitive damages may 
be awarded--so good behavior is often swept in with the bad--
and there are no clear guidelines as to the appropriate amount 
of punitive damages. The result is uncertainty and instability, 
due process violations, and a chilling effect on economic 
growth and innovation.\139\
---------------------------------------------------------------------------
    \138\ See, e.g., Small Business Job Protection Act of 1996, Pub. L. 
No. 104-188 (providing, among other things, that punitive damages 
received in personal injury cases are subject to federal income tax); 
O'Gilvie v. United States, 117 S. Ct. 452 (1996) (punitive damages 
received in tort suits are subject to federal income tax, because they 
do not represent damages received ``on account of personal injuries or 
sickness'' and, therefore, are not excluded from taxable ``gross 
income'').
    \139\ See generally Bruce Kuhlik and Richard Kingham, ``The Adverse 
Effects Of Standardless Punitive Damage Awards On Pharmaceutical 
Development And Availability,'' 45 Food Drug Cosm. L.J. 693, 693 (1990) 
(``There is a growing body of evidence that the threat of punitive 
damages deters the development and marketing of beneficial products'').
---------------------------------------------------------------------------
  The problem of punitive damages ``run wild'' is illustrated 
by the litigation involving the drug Bendectin, an anti-nausea 
morning sickness drug once marketed by Merrell Dow 
Pharmaceuticals, Inc.\140\ Although the drug had been and still 
is approved by the Food and Drug Administration and widely 
acclaimed by health care professionals worldwide, Merrell Dow 
withdrew Bendectin from the market in 1983, in part from 
concerns about punitive damages liability. Merrell Dow has 
never lost a final judgment in any Bendectin case in the twenty 
year history of the litigation; trial judges often dismiss 
these cases prior to trial.\141\ The lack of any meaningful 
standards, however, has resulted in some substantial punitive 
damages verdicts, which eventually have been overturned by 
trial courts or on appeal.\142\ On April 4, 1995, the Senate 
Commerce Committee heard compelling testimony from 
Representative James Bilbray concerning a personal family 
tragedy that possibly could have been avoided if Bendectin had 
not been improperly forced off the market.
---------------------------------------------------------------------------
    \140\ In another example of punitive damages ``run wild,'' a New 
York jury in a 1994 product liability case awarded $18 million to each 
of the three plaintiffs by looking to the Hebrew symbol for ``life,'' 
which has come to be associated with the number eighteen. See Conboy v. 
Owens-Corning Fiberglas Corp., 113070/93; Orecchia v. Owens-Corning 
Fiberglas Corp., 113071/93; Heltzer v. Owens-Corning Fiberglas Corp., 
4393/89 (Sup. Ct., New York Co., verdict Jan. 27, 1994). The award was 
reduced by the trial judge and the cases were later settled for an 
undisclosed amount.
    \141\ See, e.g., Daubert v. Merrell Dow Pharmaceuticals, Inc., 43 
F.3d 1311 (9th Cir. 1995) (on remand from U.S. Supreme Court); Turpin 
v. Merrell Dow Pharmaceuticals, Inc., 736 F. Supp. 737 (E.D. Ky. 1990), 
aff'd, 959 F.2d 1349 (6th Cir.), cert. denied, 113 S. Ct. 84 (1992).
    \142\ See, e.g., Ealy v. Richardson-Merrell, Inc., 897 F.2d 1159 
(D.C. Cir.) (overturning $75 million punitive damages award), cert. 
denied, 498 U.S. 950 (1990).
---------------------------------------------------------------------------
  The inappropriate chilling effect of punitive damages is not 
unique to Bendectin. A Kansas jury imposed punishment against 
the manufacturer of the Sabin oral polio vaccine, because the 
company had not used a version of polio vaccine that had been 
abandoned for general use in the United States for over two 
decades.\143\ There, the Kansas Supreme Court, by the slimmest 
of margins, one vote, reversed an $8 million punitive damages 
verdict. One vote the other way and American children could 
have lost access to the Sabin polio vaccine, because of the 
threat posed to its manufacturer by runaway punitive damages.
---------------------------------------------------------------------------
    \143\ See Johnson v. American Cyanamid Co., 718 P.2d 1318 (Kan. 
1986).
---------------------------------------------------------------------------
  The sheer unpredictability of the current system has also 
resulted in overdeterrence. A Conference Board Study of 
corporate executives found that fear of liability suits had 
prompted thirty-six percent of the firms to discontinue a 
product and thirty percent to decide against introducing a new 
product.
  The serious problems described are supported by empirical 
evidence. A recent study by the Texas Public Policy Foundation 
found explosive increases in both the frequency of punitive 
damages awards and their size. From the early 1980s to the 
early 1990s, the total number of punitive damages awards in 
Dallas County was fourteen times greater, and the average 
award, adjusted for inflation, was nineteen times higher. In 
Harris County (Houston), total awards were up twenty-six fold 
and the average award was up eightfold.\144\
---------------------------------------------------------------------------
    \144\ Opponents of punitive damages reform frequently cite a 1992 
study by Professor Michael Rustad of Suffolk University Law School in 
Boston, financed by the Roscoe Pound Foundation, to argue that punitive 
damages awards are rare. The Rustad Study found 355 punitive damages 
awards in product liability cases between 1965 and 1990. These groups, 
however, never acknowledge what Professor Rustad said on page two of 
his report: ``The actual number of punitive damages awards in product 
liability litigation is unknown and possibly unknowable because no 
comprehensive recording system exists.'' (Emphasis added).
---------------------------------------------------------------------------
  Similarly, a 1987 study by the Institute for Civil Justice 
found that the average punitive award in Cook County (Chicago), 
Illinois, between 1965 and 1969, was $43,000. Between 1980 and 
1984, it was $729,000--an increase of about 1,500 percent or 
seventeen times over twenty years.\145\
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    \145\ Another argument frequently heard from opponents of punitive 
damages reform is that the handful of headline-grabbing damage awards 
are often reduced on appeal. True, but only after huge legal costs, 
lost production time, and a threat to the business's basic credit, 
solvency and reputation. Those opposing reform also ignore the fact 
that approximately ninety-five percent of product liability cases are 
settled out of court and not subject to appeal. In many of these cases, 
the threat of punitive damages is abused as a ``wild card'' to force 
extortionate settlements. In approximately eighteen states, punitive 
damages are not insurable. Thus, a small business is subject to 
unwarranted pressure to settle a case for compensatory damages, which 
are insurable because a punitive damages award could end the business.
---------------------------------------------------------------------------
  As retired Supreme Court Justice Lewis Powell has written: 
``It is long past time to bring the law of punitive damages 
into conformity with our notions of just punishment.'' \146\ 
Clear, rational rules are needed to protect fundamental 
constitutional rights, remove barriers to interstate commerce, 
and promote economic growth and innovation, while at the same 
time providing incentives for responsible manufacturing 
practices.
---------------------------------------------------------------------------
    \146\ Lewis Powell, ``The `Bizarre' Results of Punitive Damages,'' 
The Wall St. J., Wed., Mar. 8, 1995, at A21.
---------------------------------------------------------------------------

     The Punitive Damages Provisions In The Act Find Strong Support

  Consistent with the Supreme Court's recognition that punitive 
damages are a form of punishment, the Act provides the 
fundamentals that are part of any criminal punishment: a 
definition of the ``crime'' by establishing a level of proof 
necessary for punishment, making the sentence fit the 
``crime,'' and appropriate procedures to reduce the likelihood 
of a judgment unfairly based on prejudice or bias. At present, 
punitive damages laws in many states fail these requirements, 
as evidenced by the United States Supreme Court's observation 
that punitive damages awards in this country have ``run wild.''

                         Defining The ``Crime''

  The Act permits punitive damages to be awarded upon proof 
that the defendant violated the standard of ``conscious, 
flagrant indifference to the rights or safety of others.'' 
\147\ This standard, which is to applied uniformly in all 
product liability cases where State law provides for the award 
of punitive damages, reflects the quasi-criminal nature of 
punitive damages and is similar to the standards of many 
states.\148\ The standard conveys that punitive damages are to 
be awarded, not for mere negligence or conduct where 
significant compensatory damages may be awarded, but only in 
serious cases of outrageous misconduct.
---------------------------------------------------------------------------
    \147\ To be ``conscious'' of its flagrant misconduct, a defendant 
must be aware that its product is legally defective and that its 
conduct in selling it in such a condition is therefore improper. Mere 
consciousness that its product is dangerous, that it can or indeed 
probably will cause substantial harm or even death, is insufficient by 
itself, since manufacturers, sellers, renters and lessors of many 
dangerous products--such as cars, power saws, and chemicals--surely are 
fully conscious of the inherent dangers in their products. It is only 
when a defendant consciously leaves in its product a danger that is 
unreasonable and known to be defective, that its conduct can be said to 
manifest a ``conscious, flagrant indifference'' to the safety of 
others.
    \148\ See, e.g., Ky. Rev. Stat. Ann. Sec.  411.184(2) (Baldwin 
1991) (``flagrant indifference to the rights of plaintiff and with a 
subjective awareness. . .''); N.J. Rev. Stat. Ann. Sec.  2A:58C-5a 
(West 1987) (``reckless indifference'' to consequences); Ohio Rev. Code 
Ann. Sec.  2307.80(A) (Page 1991) (``flagrant disregard'').
---------------------------------------------------------------------------
  The Act explains how a claimant must prove the ``crime'' and 
requires that the proof be ``clear and convincing.'' \149\ The 
standard recognizes the quasi-criminal nature of punitive 
damages by taking a middle ground between the burden of proof 
standard ordinarily used in civil cases (i.e., proof by a 
``preponderance of the evidence'') and the criminal law 
standard (i.e., proof ``beyond a reasonable doubt'').\150\
---------------------------------------------------------------------------
    \149\ ``Clear and convincing evidence'' is defined in section 
101(3).
    \150\ See Malcolm Wheeler, The Constitutional Case for Reforming 
Punitive Damage Procedures, 69 Va. L. Rev. 269, 298 (1983).
---------------------------------------------------------------------------
  A burden of proof of ``clear and convincing evidence'' is now 
law in thirty states and the District of Columbia.\151\ This 
burden of proof has been recommended by each of the principal 
academic groups to analyze the law of punitive damages since 
1979, including the American Bar Association, the American 
College of Trial Lawyers, and the National Conference of 
Commissioners on Uniform State Laws in 1996.\152\ The Supreme 
Court has specifically endorsed requiring ``clear and 
convincing evidence'' for the award of punitive damages.\153\
---------------------------------------------------------------------------
    \151\ See Ala. Code Sec.  6-11-20 (1993); Alaska Stat. Sec. 09-17-
020 (1994); Cal. Civ. Code Sec. 3294(a) (West 1970 & Supp. 1995); Ga. 
Code Ann. Sec. 51.12-5.1 (Supp. 1995); 735 ILCS 5/2-1115.05(b) (1995); 
Iowa Code Ann. Sec. 668A.1 (West 1987); Kan. Stat. Ann. Sec. 60-3701(c) 
(1994); Ky. Rev. Stat. Ann. Sec. 411.184(2) (Michie/Bobbs-Merrill 
1992); Minn. Stat. Ann. Sec. 549.20 (West 1988 & Supp. 1995); Miss. 
Code Ann. Sec. 11-1-65(1)(a) (Supp. 1995); Mont. Code Ann. Sec. 27-1-
221(5) (1995); N.J. Stat. Ann. Sec. 2A:15-5.12 (1995); Nev. Rev. Stat. 
Ann. Sec. 42-005(1) (1991); N.C. H.B. 729 (effective Jan. 1, 1996); 
N.D. Cent. Code Sec. 32-03-2-11 (Supp. 1995); Ohio Rev. Code Ann. 
Sec. 2307.80(A) (Anderson 1991); Okla. Stat. Ann. tit. 23, Sec. 9.1 
(West Supp. 1995); Or. Rev. Stat. Sec. 18.537 (1995); S.C. Code Ann. 
Sec. 15-33-135 (Law. Co-op. Supp. 1995); S.D. Codified Laws Ann. Sec.  
21-1-4.1 (1987); Tex. S.B. 25 (effective Sept. 1, 1995); Utah Code Ann. 
Sec. 78-18-1 (1992); Linthicum v. Nationwide Life Ins. Co., 723 P.2d 
675 (Ariz. 1986); Jonathan Woodner, Co. v. Breeden, 665 A.2d 929 (D.C. 
1995); Masaki v. General Motors Corp., 780 P.2d 566 (Haw. 1989); 
Travelers Indem. Co. v. Armstrong, 442 N.E.2d 349 (Ind. 1982); Tuttel 
v. Raymond, 494 A.2d 1353 (Me. 1985); Owens-Illinois v. Zenobia, 601 
A.2d 633 (Md. 1992); Hodges v. S.C. Toof & Co., 833 S.W.2d 896 (Tenn. 
1992); Wangen v. Ford Motor Co., 294 N.W.2d 437 (Wis. 1980); Rodriguez 
v. Suzuki Motor Corp., 936 S.W.2d 104 (Mo. 1996) (en banc). One state, 
Colorado, requires proof beyond a reasonable doubt in punitive damages 
cases. See Colo. Rev. Stat. Sec. 13-25-127(2) (1987).
    \152\ See American Bar Association, Special Committee on Punitive 
Damages of the American Bar Association, Section on Litigation, 
Punitive Damages: A Constructive Examination 19 (1986) [hereinafter ABA 
Report]; American College of Trial Lawyers, Report on Punitive Damages 
of the Committee on Special Problems in the Administration of Justice 
15-16 (1989) [hereinafter ACTL Report]; American Law Institute, 2 
Enterprise Responsibility for Personal Injury--Reporters' Study 248-49 
(1991) [hereinafter ALI Reporters' Study]; National Conference Of 
Commissioners On Uniform State Laws, Uniform Law Commissioners' Model 
Punitive Damages Act Sec. 5 (approved on July 18, 1996) [hereinafter 
Uniform Law Commissioners' Model Punitive Damages Act].
    \153\ See Pacific Mutual Life Ins. Co., 499 U.S. at 23 n.11 
(stating that ``there is much to be said in favor of a state's 
requiring, as many do, . . . a standard of `clear and convincing 
evidence' '').
---------------------------------------------------------------------------

                Making the Sentence Fit the ``Offense''

  The Act puts reasonable parameters on ``sentencing'' to make 
it fit the ``offense.'' Proportionality has been an important 
part of the Supreme Court's consideration of the validity of 
criminal punishment.\154\ Even very serious crimes such as 
larceny, robbery, and arson have sentences defined with a 
maximum set forth in a statute.\155\
---------------------------------------------------------------------------
    \154\ See, e.g., Harmelin v. Michigan, 501 U.S. 957 (1991); Solem 
v. Helm, 463 U.S. 277 (1983); Hutto v. Davis, 454 U.S. 370 (1982); 
Rummel v. Estelle, 445 U.S. 263 (1980).
    \155\ Some examples of federal criminal fines, even for 
particularly egregious crimes, do not exceed $250,000 and include: 
tampering with consumer products ($100,000, if death results); 
retaliation against a witness ($250,000); assault on the President 
($10,000); bank robbery ($10,000, with the use of a deadly weapon); 
sexual exploitation of children ($100,000 for an individual, $200,000 
for an organization); and treason ($10,000).
---------------------------------------------------------------------------
  The Act sets forth the presumptive maximum ``sentence'' 
against larger businesses as two times the sum of a plaintiff's 
compensatory damages (i.e., economic loss plus noneconomic 
loss), or $250,000, whichever is greater. It also recognizes 
that smaller businesses and organizations, as well as 
individuals, need special protection from punitive damages. The 
Act, therefore, sets forth the maximum ``sentence'' against an 
individual whose net worth does not exceed $500,000 or against 
an owner of an unincorporated business, or any partnership, 
corporation, association, unit of local government, or 
organization which has fewer that twenty-five full-time 
employees, as the lesser of two times the amount awarded to the 
claimant for compensatory damages, or $250,000 (i.e., $250,000 
is the maximum).
  In cases involving larger businesses, a judge may choose not 
to apply the presumptive statutory limit and may award punitive 
damages up to the amount of the jury verdict, but never above 
the jury award, if the ``proportionate'' award is found to be 
``insufficient to punish the egregious conduct of the 
defendant.''
  If State law further limits the amount of punitive damages 
which may be awarded, those limits are not preempted by this 
Act.
  The general approach used in the Act to prevent runaway 
verdicts and achieve proportionality in punitive damages awards 
is modeled after a proposal by the American College of Trial 
Lawyers, \156\ a respected organization of experienced 
plaintiff and defense trial attorneys. Other ``mainstream'' 
academic groups have likewise recommended that punitive damages 
be awarded in some ratio to actual damages.\157\ Approximately 
one-quarter of the States have set forth guidelines, including 
Illinois, Indiana, North Carolina, New Jersey, Oklahoma, Texas 
in 1995, Ohio in 1996, and Alaska in 1997.\158\
---------------------------------------------------------------------------
    \156\ See ACTL Report at 15 (proposing that punitive damages be 
awarded up to two times a plaintiff's compensatory damages or $250,000, 
whichever is greater). The ACTL approach also provides that the jury is 
not to be informed of the limit on punitive damages, and that the limit 
is to be applied by the judge after the case. This is the approach 
followed in some states, among them Virginia. See Va. Code Ann. 
Sec. 8.01-38.1 (1994).
    \157\ See ABA Report at 64-66 (recommending that punitive damages 
awards in excess of three-to-one ratio to compensatory damages be 
considered presumptively ``excessive''); ALI Reporters' Study at 258 59 
(endorsing concept of ratio coupled with alternative monetary ceiling).
    \158\ See Alaska H.B. 58 Sec. 9.17.020(f)-(h)(signed by Governor 
May 9, 1997; punitive damages limited to three times amount of 
claimant's compensatory damages of $500,000, whichever is greater; but 
in cases involving actual malice, punitive damages may be awarded up to 
four times the amount of claimant's compensatory damages, or four times 
the aggregate amount of financial gain that the defendant received as a 
result of its conduct, or $7 million, whichever is greater); Ohio Am. 
Sub. H.B. No. 350 Sec. 2315.21 (signed by governor 1996) (limits amount 
of punitive damages recoverable from all parties except large employers 
to the lesser of three times the amount of compensatory damages awarded 
to the plaintiff or $100,000 and limits the amount of punitive damages 
recoverable from large employers to the greater of three times the 
amount of compensatory damages awarded to the plaintiff or $250,000); 
Ill. Ann. Stat., ch. 735 ] 5/2-1115.05 (Smith-Hurd 1995) (punitive 
damages limited to three times amount of claimant's economic damages); 
Ind. Code Ann. Sec. 634-4-34-5 (1995) (limits punitive damages to the 
greater of three times actual damages or $50,000); N.C. Gen. Stat. 
Sec. 1D-25 (1995) (punitive damages limited to three times amount of 
claimant's compensatory damages or $250,000, whichever is greater); 
Tex. Civ. Prac. & Rem. Code Ann. Sec. 41.008 (West 1995) (limits 
punitive damages awards to $200,000 or two times economic damages plus 
an amount equal to any noneconomicdamages up to $750,000); N.J. Stat. 
Ann. Sec. 22A:15-5.14 (West 1995) (punitive damages limited to five 
times amount of claimant's compensatory damages or $350,000, whichever 
is greater); Nev. Rev. Stat. Sec. 42.005 (1991) (punitive damages 
awards permitted up to $300,000 in cases where compensatory damages are 
less than $100,000 and to 3 times the amount of compensatory damages in 
cases of $100,000 or more); N.D. Cent. Code Sec. 32.03.2-11(4) (1995) 
(permitting punitive damages up to twice compensatory damages, or 
$250,000, whichever is greater); Conn. Gen. Stat. Sec. 52-204a (West 
Supp. 1992) (punitive award permitted up to twice the compensatory 
damages); Fla. Stat. Ann. Sec. 768.73(1)(b) (West Supp. 1992) (punitive 
damages may be awarded up to 3 times compensatory damages unless 
``clear and convincing evidence'' is presented by the plaintiff to show 
that a higher award is not excessive); Kan. Stat. Ann. Sec. 60-3701 
(1995) (punitive damages in general shall not exceed the annual gross 
income earned by the defendant based on the defendant's highest gross 
income earned for any one of the five years immediately before the act 
for which such damages are awarded, or $5 million, whichever is less); 
Colo. Rev. Stat. Sec. 13-21-102(1)(a)(1987) (punitive award may not 
exceed compensatory damages); Okla. S.B. 263 (punitive damages 
generally permitted up to amount of compensatory damages awarded) 
(effective Aug. 25, 1995); Va. Code Ann. Sec. 8.01-38.1 (1994) 
(punitive damages permitted up to a maximum of $350,000).
---------------------------------------------------------------------------
  Permitting the award of punitive damages up to a proportion 
of a plaintiff's actual damages, coupled with an alternative 
monetary ceiling, is the fairest and most flexible of the 
various attempts to place parameters on the size of punitive 
damages awards. This flexible approach accomplishes punishment 
and deterrence even in the unusual situation where there is 
serious misconduct but relatively minor actual damages. Federal 
antitrust laws have worked well for decades with punishment set 
in proportion to actual losses. They are a solid model for 
appropriate punishment.

         Arguments Challenging Proportionality Are Unsupported

  It has been argued that proportionality may result in 
inadequate deterrence. As Thomas Jefferson noted, however, over 
two hundred years ago, ``if the punishment were only 
proportional to the injury, men would feel it their inclination 
as well as their duty to see the laws observed.'' \159\
---------------------------------------------------------------------------
    \159\ Thomas Jefferson, ``A Bill for Proportioning Crimes and 
Punishment in Cases Heretofore Capital,'' 1779, in ``Papers of Thomas 
Jefferson,'' 2:492, 493 (Julian P. Boyd ed. 1950).
---------------------------------------------------------------------------
  Furthermore, it should be remembered that there is no limit 
on the number of times a party can be punished under the Act 
and that when a person engages in wrongful conduct, he or she 
does not know how many people will be hurt and how much harm 
might occur. Thus, there is simply no way for a defendant to 
determine in advance the actual damages of all persons who may 
be injured by its conduct.
  One must also remember that compensatory damages in many 
product liability cases run very high. Accordingly, the Act's 
approach to proportionality in punitive damages awards for 
larger businesses (i.e., the greater of two times a claimant's 
total compensatory damages or $250,000) would permit the 
imposition of substantial punitive damages. For example, in a 
June 1996 case involving a driver injured in an automobile 
accident, an Alabama jury awarded $50 million in compensatory 
damages and $100 million in punitive damages. The automobile's 
manufacturer argued that the plaintiff had been intoxicated and 
lost control of his car after falling asleep at the wheel.\160\ 
In July 1995, a Missouri jury awarded a total of $350 million 
to the family of a pilot killed in a helicopter crash against 
the French manufacturer of the helicopter's engine. The award 
consisted of $175 million in compensatory damages and $175 
million in punitive damages.\161\ Numerous other examples of 
product liability cases involving large compensatory damages 
exist in the case law.\162\
---------------------------------------------------------------------------
    \160\ See Hardy v. General Motors Corp., CV-93-56 (Ala. Cir. Ct., 
Lowndes Co., verdict June 3, 1996).
    \161\ See Barnett v. La Societe Anonyme Turbomeca France, CV-93-
24644 (Mo. Cir. Ct., Jackson Co., verdict July 20, 1995).
    \162\ See, e.g., Letz v. La Societe Anonyme Turbomeca France, No. 
CV93-19156 (Mo. Cir. Ct. 1995) ($70 million compensatory award to 
family of woman who died when defective helicopter crashed. No punitive 
damages available in wrongful death cases in Missouri); Eimers v. Honda 
Motor Co., No. 90-25 (W.D. Pa. 1993) ($19.7 million compensatory award 
to man injured when sidestand on motorcycle caught on ground during 
turn); Ketchum v. Hyundai Motor Co., No. VC 004170 (Cal. Super. Ct. Los 
Angeles Cty. 1993) ($15 million compensatory award to boy in case 
involving defective seat belt); General Chemical Corp v. De La Lastra, 
No. D-1799 (Texas Sup. Ct. 1993) ($14.6 million compensatory award to 
family of two brothers asphyxiated while spreading a sulfite-based 
chemical on shrimp catch); Lopez v. Westinghouse, No. 8508 (Texas Dist. 
Ct., 229th Jud. Dist., 1991) ($13 million compensatory award to family 
of man electrocuted while working on a defective piece of equipment); 
Allman v. Sears, Roebuck & Co., 1989 U.S. Dist. LEXIS 11897 (E.D. Pa. 
1989)($10 million compensatory award to plaintiff injured in case 
involving defective propane tank).
---------------------------------------------------------------------------
  It has also been argued that totally unlimited punitive 
damages are needed to police corporate wrongdoing. This 
assertion is not supported by fact. There is no credible 
evidence that the behavior of corporations, individuals, or 
others is less safe in either those states that have set limits 
on punitive damages or in the six states (Louisiana, Nebraska, 
Washington, New Hampshire, Massachusetts, and Michigan) \163\ 
that do not permit punitive damages at all. Some have argued 
that plaintiffs could find it difficult to obtain legal 
representation if punitive damages are limited, but plaintiffs 
in these states have no more difficulty obtaining legal 
representation than in those states where the ``sky is the 
limit.''
---------------------------------------------------------------------------
    \163\ Michigan permits ``exemplary'' damages as compensation for 
mental suffering consisting of a sense of insult, indignity, 
humiliation, or injury to feelings, but does not permit punitive 
damages for purposes of punishment. See Wise v. Daniel, 190 N.W.2d 746 
(Mich. 1992).
---------------------------------------------------------------------------
  Finally, it has been argued that the proportionality 
requirement in section 108 is unfair to women and others 
groups, who allegedly ``rely more heavily on noneconomic 
damages to receive compensation for injuries.'' First, this 
argument misapprehends the basic premise that punitive damages 
have absolutely nothing to do with compensating an individual 
for a loss--punitive damages are used for the social purpose of 
punishing the defendant and deterring similar wrongful contact 
and as such they are purely a ``windfall'' to the claimant. 
Second, women plaintiffs who work in the home, children and the 
elderly have ``economic losses'' that do not show up in Bureau 
of Labor Statistics data and which are readily recovered in 
punitive damage actions.\164\ These arguments also ignore women 
in business, particularly small businesses, whose entire 
enterprise is threatened by out of control punitive 
damages.\165\
---------------------------------------------------------------------------
    \164\ In the case of children, economists are frequently used at 
trial to provide testimony based on income and work-life expectancy 
data generated by the federal government as to economic loss. The same 
is true of women and the elderly, where the focus is on the economic 
value of services these persons provide and the cost to employ 
substitute domestic services, which can be quite high.
    \165\ A U.S. Small Business Administration study has predicted that 
women will own forty percent of all small businesses by the year 2000. 
In addition, Paul Huard, Senior Vice President of the National 
Association of Manufacturers (NAM), testified before the House Commerce 
Committee in February 1995 that smaller firms will benefit most from 
product liability and punitive damages reform, because they are least 
able to absorb the outrageous costs of the current product liability 
system.
---------------------------------------------------------------------------

 Judicial Power To Award Punitive Damages Up To Amount Of Jury Verdict 
             In Circumstances Manifesting Egregious Conduct

  In a case involving a larger business, the Act allows a judge 
to choose not to apply the presumptive statutory limit and 
award punitive damages up to the amount of the jury verdict, 
but never above the jury award. The judge may do this if the 
``proportionate'' award is ``insufficient to punish the 
egregious conduct of the defendant.'' The Act lists a number of 
factors that judges are to consider when making this 
determination, but the judge is not required to find all of 
them to award an additional amount of punitive damages. The 
trial court must articulate its reasons for utilizing this 
exception to the rule limiting punitive damages in findings of 
fact and conclusions of law. Research by the United States 
Department of Justice indicates that the provision does not 
violate the right to trial by jury in civil cases found in the 
Seventh Amendment to the United States Constitution.\166\
---------------------------------------------------------------------------
    \166\ See Cong. Record, May 9, 1995, S6328-29. For purposes of 
severability analysis, sections 108(b)(1) and 108(b)(3) are to be 
considered nonseverable; section 108(b)(2) contains a special rule for 
smaller businesses which is severable from sections 108(b)(1) and 
108(b)(3).
---------------------------------------------------------------------------

                              Bifurcation

  ``Bifurcation'' is a procedure that permits a trial to be 
divided into two segments, the first addressing compensatory 
damages, the second dealing with punitive damages. Judicial 
economy is achieved by having the same jury determine both 
compensatory damages and punitive damages issues.
  The Act provides for bifurcation at the request of any party 
in a case alleging punitive damages. It permits either party to 
request that the trier of fact conduct a separate proceeding to 
determine whether punitive damages are to be awarded for the 
harm that is the subject of the action and the amount of the 
punitive award. The Act also provides that, in such a 
proceeding, evidence relevant only to the claim of punitive 
damages, as determined by state law, shall be inadmissible in 
any proceeding to determine whether compensatory damages are to 
be awarded. The ``bifurcated trials'' provision is to be 
applied uniformly in all product liability cases.
  Bifurcated trials are equitable, because they prevent 
evidence that is highly prejudicial and relevant only to the 
issue of punitive damages (i.e., the wealth of the defendant) 
from being heard by jurors and improperly considered when they 
are determining basic liability. Bifurcation also helps jurors 
``compartmentalize'' a trial, allowing them to separate and 
understand the difference in the burden of proof that is 
required for compensatory damages awards (i.e., proof by a 
preponderance of the evidence) from the higher burden of proof 
(i.e., proof by clear and convincing evidence) that is required 
under the Act to support liability for punitive damages.
  Recognizing the benefits of bifurcation, some courts have 
recently adopted the procedure as a matter of common law 
reform.\167\ Other states have made similar changes through 
court rules or legislation.\168\ This reform is supported by 
the American Law Institute's Reporters' Study, the American Bar 
Association, the American College of Trial Lawyers, and the 
National Conference of Commissioners on Uniform State 
Laws.\169\
---------------------------------------------------------------------------
    \167\ See Transportation Ins. Co. v. Moriel, 879 S.W.2d 10 (Tex. 
1994); Hodges v. S.C. Toof & Co., 833 S.W.2d 896 (Tenn. 1992).
    \168\ See Cal. Civ. Code Sec.  3295(d) (West Supp. 1993); Miss. 
H.B. 1270 Sec.  2(1)(b) (signed by governor Feb. 18, 1993); Minn. Stat. 
Ann. Sec.  549.20 (West Supp. 1993); Mont. Code Ann. Sec.  27-1-221(7) 
(1991); Nev. Rev. Stat. Sec.  42.005(3) (1991); N.J. Stat. Ann. Sec.  
2A:58C-5(b) (West 1987); N.D. Cent. Code Sec.  32-03.2-11(2)-(3) 
(signed by governor Mar. 31, 1993); Utah Code Ann. Sec.  78-18-1(2) 
(1992).
    \169\ See ABA Report at 19; ACTL Report at 18-19; ALI Reporters' 
Study at 255 n.41; Uniform Law Commissioners' Model Punitive Damages 
Act at Sec.  11.
---------------------------------------------------------------------------

                               Preemption

  The Act does not create a cause of action for punitive 
damages or provide for recovery of punitive damages in those 
States where such damages do not exist. The Act does create a 
uniform standard of liability for punitive damages where 
punitive damages would otherwise be available under state law. 
The Act also requires the uniform use of the ``bifurcated 
trials'' procedures described above. However, nothing in the 
Act preempts or supersedes any State or Federal law that would 
further limit the amount of punitive damages that may be 
awarded. Since section 108 does not preempt State laws that 
would further limit the award of punitive damages, if the 
application of otherwise applicable State law would result in a 
lower amount of punitive damages than would application of 
section 108, the State law would apply. Similarly, the 
``additional amount'' provision (section 108(c)) applies only 
to the calculation of punitive damages under Federal law, and 
does not affect the application of otherwise applicable State 
law regarding punitive damages. Furthermore, nothing in this 
Act shall modify or reduce the ability of courts to order 
remittiturs.
  Section 108(a) establishes a uniform standard of liability 
for punitive damages. It provides that punitive damages may be 
awarded, to the extent permitted by applicable state law, if 
the claimant establishes by ``clear and convincing evidence'' 
that the harm that is the subject of the action was carried out 
by the defendant with a ``conscious, flagrant indifference to 
the rights or safety of others.''
  Section 108(b) requires that the punitive damage award be 
proportional to the harm caused. Section 108(b)(1) provides 
that the amount of punitive damages that may be awarded for a 
claim against a larger business is two times the amount of the 
plaintiff's compensatory damages, or $250,000, whichever is 
greater. Section 108(b)(2) provides that the maximum amount of 
punitive damages recoverable against an individual whose net 
worth does not exceed $500,000 or against an owner of an 
unincorporated business, or any partnership, corporation, 
association, unit of local government, or organization which 
has fewer that twenty-five full-time employees, shall not 
exceed the lesser of two times the amount awarded to the 
claimant for compensatory damages, or $250,000.
  Section 108(b)(3) sets forth an exception to the limitation 
on punitive damages awards contained in section 108(b)(1). 
Section 108(b)(3)(A) allows a judge to award punitive damages 
against a larger business up to the amount of the jury verdict 
when the ``proportionate'' award is ``insufficient to punish 
the egregious conduct of the defendant. . . .'' Section 
108(b)(3)(B) lists a number of factors that judges are to 
consider when making this determination, but the judge is not 
required to find all of them to award an additional amount of 
punitive damages. Section 108(b)(3)(C) states that, if a trial 
court awards punitive damages beyond the statutory limit, it 
shall articulate its reasons in findings of fact and 
conclusions of law. Section 108(b)(3)(D) states that the Act 
does not create a cause of action for punitive damages or 
provide for recovery of punitive damages in those States where 
such damages do not exist. It also does not preempt or 
supersede any State or Federal law to the extent that such law 
would further limit the amount of a punitive damages award. 
Furthermore, nothing in the Act modifies or reduces the ability 
of courts to order remittiturs.
  Section 108(c) permits either party to request that the trier 
of fact conduct a separate proceeding to determine whether 
punitive damages are to be awarded for the harm that is the 
subject of the action and the amount of the award. Section 
108(c) also provides that, in such a proceeding, evidence 
relevant only to the claim of punitive damages, as determined 
by state law, shall be inadmissible in any proceeding to 
determine whether compensatory damages are to awarded.

Section 109--Liability for certain claims relating to death

  Alabama's system for the recovery of damages in civil actions 
relating to death is unique among the States. Unlike every 
other State, Alabama's wrongful death statute, \170\ as 
interpreted, provides for only punitive damages in wrongful 
death cases.\171\ Compensatory damages are not available in 
Alabama wrongful death actions. As a result, Senators Heflin 
and Shelby of Alabama argued during floor debate in the 104th 
Congress,\172\ that Alabama wrongful death claimants could be 
adversely affected by the punitive damages reforms section of 
the Act.
---------------------------------------------------------------------------
    \170\ See Ala. Code Sec. Sec.  6-5-391, 6-5-410 (1993 Repl. Vol.).
    \171\ See, e.g., Deaton, Inc. v. Burroughs, 456 So. 2d 771, 776 
(Ala. 1984). Under current Alabama law, the product liability wrongful 
death plaintiff need not show wanton, reckless, or intentional conduct, 
but merely the same proof required to make out a standard negligence or 
Alabama Extended Manufacturer's Liability Doctrine claim. Evidence of 
loss of earnings, loss of enjoyment of life, and contributions to 
family are inadmissible, because they are irrelevant.
    \172\ See Cong. Record, May 9, 1995, S6325-27.
---------------------------------------------------------------------------
  To accommodate the immediate special needs of Alabama 
wrongful death claimants, the Act permits Alabama's wrongful 
death law to continue unaffected by the punitive damages 
reforms in the Act until September 1, 1997. The Act will, 
therefore, allow the Alabama legislature an adequate 
opportunity to amend its wrongful death statute to conform with 
the approach used by every other State.
  Section 109 provides that in any civil action in which the 
alleged harm to the claimant is death and, as of the effective 
date of this Act, the applicable State law provides, or has 
been construed to provide, for damages only punitive in nature 
(i.e., if the case involves an Alabama wrongful death claim), a 
defendant may be liable for any such damages without regard to 
section 108, but only during such time as the State law so 
provides. Section 109 shall cease to be effective on September 
1, 1997, or on the effective date of legislation amending 
Alabama's wrongful death statute, whichever is earlier.

Section 110--Several liability for noneconomic loss

  The Act adopts the ``California rule,'' which holds 
defendants liable for their ``fair share'' of responsibility 
for noneconomic loss, such as pain and suffering.
  The concept of ``fair share,'' or several, liability sounds 
self-evident to most people. Most states, however, give 
expression in their law to the principle of joint (``deep 
pocket'') liability which, in its unrestrained form, means that 
a defendant who is found only one percent at fault can be 
burdened with an entire damages award.\202\ This system is 
unfair and blunts incentives for safety, because it allows 
negligent actors to under-insure and puts full responsibility 
on those who may have been only marginally at fault. Thus, a 
jury's specific finding that a defendant is minimally at fault 
gets overridden and the minor player in the lawsuit bears an 
unfair and costly burden.
---------------------------------------------------------------------------
    \202\ For example, in Walt Disney World Co. v. Wood, 515 So. 2d 198 
(Fla. 1987), Disney was required to pay an entire damages award, even 
though it was only one percent at fault for the claimant's harm. The 
rationale for making a defendant who is only one percent at fault pay 
100 percent of damages is due to something called, ``risk 
distribution.'' The theory is that a wealthy defendant is better able 
to distribute the cost of a risk of injury than an injured plaintiff is 
able to absorb it. The ``risk distribution'' rationale supports the 
idea of allowing joint liability for economic losses, loss of wages, 
medical costs, or many other economic costs that an injured person may 
sustain. It does not, directly or indirectly, support a law that would 
require someone who is only one percent at fault to pay 100 percent 
damages for pain and suffering or other such noneconomic losses. The 
law of workers' compensation is an excellent example. That is a ``risk 
distribution'' mechanism. The losses that are paid under that 
mechanism, however, are economic losses, not damages for pain and 
suffering.
---------------------------------------------------------------------------
  Joint liability has produced extreme and unwanted 
consequences. It has caused suppliers of raw materials, often 
``deep pockets,'' to refuse to supply critical raw materials to 
manufacturers of medical devices and other needed products, 
such as protective sporting goods equipment.
  Julie Nimmons, President and Chief Executive Officer of 
Schutt Sports Group in Litchfield, Illinois, one of two 
remaining U.S. manufacturers of football helmets, \203\ 
testified in September 1993 about a baseball safety product 
that her company did not make because no raw material supplier 
would accept the potential liability of supplying components 
for the new safety product.\204\
---------------------------------------------------------------------------
    \203\ In 1988, Rawlings Sporting Goods decided to stop 
manufacturing or selling football helmets. Rawlings was the 18th 
manufacturer to discontinue the manufacture of this product, joining 
Hutch, Spaulding, Wilson and MacGregor. According to Riddell, Inc., one 
of two remaining U.S. helmet manufacturers, half of the cost of a 
football helmet goes to liability-related expenses.
    \204\ Testimony of Ms. Julie Nimmons, hearing of the Consumer 
Subcommittee, Senate Committee on Commerce, Science and Transportation, 
September 23, 1993, S. Hrg. 103-490, at 20.
---------------------------------------------------------------------------
  On March 4, 1997, Ms. Nimmons testified that her company 
would like to market protective head gear for hockey players to 
meet the rapidly growing interest in the sport in the United 
States, but the current product liability system deters her 
from doing so.\205\ Committees in both the Senate and the House 
of Representatives have received numerous testimonies about 
similar experiences by other individuals during the decade and 
a half Congress has considered the issue of product liability 
reform legislation.\206\
---------------------------------------------------------------------------
    \205\ Testimony of Ms. Julie Nimmons, hearing of the Senate 
Committee on Commerce, Science and Transportation, March 4, 1997, at 2.
    \206\ For example, Mary Kaynor, counsel for the Risk Management 
Foundation at Harvard Medical Institutions, testified before the Senate 
Small Business Committee in November 1991 that her foundation, which 
sponsors medical research products, is discouraged from dealing with 
small businesses because they fear that the foundation will become the 
``deep pocket'' in the event of a lawsuit. This result is particularly 
unfortunate because small businesses are widely recognized as uniquely 
important to the innovative process.
---------------------------------------------------------------------------
  Recognizing the need for joint liability reform, 
approximately thirty-three states have abolished or modified 
the principle of joint liability.\207\ They have done so, 
however, in a great variety of ways and, thereby, have 
contributed to the already serious problem of inconsistency 
among our nation's tort laws. (A fact that is often overlooked 
is that no state has repealed laws that have limited or 
eliminated joint liability).
---------------------------------------------------------------------------
    \207\ See Victor Schwartz, Comparative Negligence app. b (3d ed. 
1994). The ALI Reporters' study also recommends reforming the doctrine 
of joint and several liability. See ALI Reporters' Study at 147.
---------------------------------------------------------------------------
  The Act takes a fair and balanced approach. It follows a 
joint liability reform enacted in California through a ballot 
initiative (``Proposition 51'') approved by an overwhelming 
majority of voters in 1986.\208\ The Act permits the States to 
apply the rule of joint liability for economic damages (e.g., 
medical expenses and lost wages and the cost of substitute 
domestic services in the case of injury to a homemaker), so 
that claimants can recover full compensation for these 
losses.\209\ On the other hand, it eliminates joint liability 
for ``noneconomic damages'' (e.g., damages for pain and 
suffering or emotional distress). This means that each 
defendant will be liable for damages for pain and suffering in 
an amount proportional to its share of fault. The provision 
does not set any ``caps'' or ``limits'' on noneconomic losses.
---------------------------------------------------------------------------
    \208\ See Cal. Civ. Code Ann. Sec.  1421.2 (West 1996). The 
Nebraska legislature adopted this approach in 1991 after carefully 
studying the issue. See Neb. Rev. Stat. Sec.  25-21,185.10 (1989 & Cum 
Supp. 1994).
    \209\ Section 110 limits the doctrine of joint liability as applied 
to noneconomic damages in product liability actions. This section, 
however, does not preempt other limitations on joint liability with 
respect to economic damages, which have been imposed by individual 
jurisdictions. Indeed, a number of jurisdictions have enacted more 
sweeping reforms with respect to joint liability. These reforms are not 
affected by the Act.
---------------------------------------------------------------------------
  In applying section 110, the trier of fact is to apportion 
responsibility for a claimant's harm in reference to all 
persons responsible for the injury, whether or not such person 
is a party to the product liability action.\210\ In 1992, the 
California Supreme Court unanimously held in DaFonte v. Up-
Right, Inc., 2 Cal. 4th 593, 602, 828 P.2d 140, 145 (1992), 
that the California law on which section 110 is based could not 
achieve its purpose unless read this way. The Supreme Court of 
Florida, in Fabre v. Marin, 623 So. 2d 1182, 1185 (Fla. 1993), 
interpreting a similar statute, held:
---------------------------------------------------------------------------
    \210\ Thus, the trier of fact will measure a defendant's share of 
fault or responsibility for the claimant's loss by references to all 
responsible for the claimant's loss, including defendants, third-party 
defendants, settled parties, non-parties, and persons or entities that 
cannot be tried (e.g., bankrupt persons, employers, and other immune 
entities).

          The only means of determining a party's percentage of 
        fault is to compare that party's percentage to all of 
        the other entities who contributed to the accident, 
        regardless of whether they have been or could have been 
---------------------------------------------------------------------------
        joined as defendants.

  In reaching its holding, the court approvingly quoted a lower 
court opinion which stated:

          The obvious purpose of the statute was to partially 
        abrogate the doctrine of joint and several liability by 
        barring its application to noneconomic damage. To 
        exclude from the computation the fault of an entity 
        that happens not to be a party to the proceeding would 
        thwart this intent. Id. at 1184. The Act is consistent 
        with the laws in these states.

     The ``California Approach'' Is Fair and Does Not Discriminate

  Some opponents of joint liability reform have argued that the 
California approach somehow discriminates, because women or 
other groups may have less economic losses than others. The 
California approach does not discriminate. In fact, the 
California Supreme Court has ruled that the California law 
meets equal protection guarantees found in both the California 
and United States Constitutions.\211\
---------------------------------------------------------------------------
    \211\ See Evangelatos v. Superior Court, 753 P.2d 585 (Cal. 1988).
---------------------------------------------------------------------------
  Moreover, Suzelle Smith, a highly respected attorney from 
California who practices both for plaintiffs and defendants, 
testified before the Consumer Affairs Subcommittee in September 
1993 and before the Senate Judiciary Committee in March 1994 
that the California approach works, is fair to all groups, and 
is pro-consumer. She testified that, prior to the California 
initiative, her experience was that juries often rendered 
defense verdicts in cases in which a finding to the contrary 
could mean that a minimally at-fault defendant would be saddled 
with the entire damage award.
  Section 110(a) limits each defendant's liability for 
noneconomic damages in a product liability action to that 
defendant's percentage of responsibility as determined by the 
trier of fact. In most cases the percentage determination 
required by this section will not be subject to an exact 
mathematical computation. Rather, it will be based on the 
common sense approximation assigned to it by the jury or by the 
court. In determining the percentage of each defendant's 
liability, the trier of fact should take into consideration the 
proportionate share of each party's responsibility for the 
total harm caused, including that portion attributable to the 
claimant. The focus of the inquiry should be on the defendant's 
``responsibility.'' For example, if a defendant's share of 
responsibility for the harm is found to be twenty-five percent, 
that defendant is liable for twenty-five percent of the 
noneconomic damages award.
  Section 110(b) provides that, for purposes of determining the 
amount of noneconomic loss allocated to a defendant under 
section 110(a), the trier of fact shall apportion 
responsibility for a claimant's harm in reference to all 
persons responsible for the injury, whether or not such person 
is a party to the product liability action.

                TITLE II--BIOMATERIALS ACCESS ASSURANCE

  Each year millions of citizens depend on the availability of 
implantable medical devices, such as pacemakers, heart valves, 
artificial blood vessels, angioplasty catheters, left 
ventricular assist devices, and hip and knee joints. The 
availability of these devices is critically threatened, because 
several suppliers have ceased supplying raw materials and 
component parts to medical implant manufacturers. Suppliers 
have found that the risks and costs of responding to litigation 
related to medical implants far exceeds potential sales 
revenues, even though courts are not finding suppliers 
liable.\212\
---------------------------------------------------------------------------
    \212\ See generally Edward M. Mansfield, Reflections on Current 
Limits on Component and Raw Materials Supplier Liability and the 
Proposed Third Restatement, 84 Ky. L.J. 221, 235-37 (1995-96).
---------------------------------------------------------------------------
    For example, a 1997 study by Aronoff Associates, 
``Biomaterials Availability: A Vital Health Care Industry Hangs 
in the Balance,'' \213\ which updates a 1994 study,\214\ 
reveals that at least seventy-five percent of suppliers of 
biomaterials who used to make medical implants have banned 
sales to U.S. implant manufacturers. Most of those that still 
supply are seriously evaluating whether they should continue to 
do so. This change reflects a forty percent drop in the 
percentage of suppliers willing to sell to the permanent 
implant market since 1994, when the first study on the 
biomaterials shortage was released.
---------------------------------------------------------------------------
    \213\ See Aronoff Associates, Biomaterials Availability: A Vital 
Health Care Industry Hangs in the Balance (April 1997).
    \214\ See Aronoff Associates, Market Study: Biomaterials Supply For 
Permanent Medical Implants (March 1994).
---------------------------------------------------------------------------
  The 1997 study by Aronoff Associates found that the costs and 
risks associated with possible claims was a key factor in every 
supplier's decision not to sell to the implant market. The 
study also found that there will be a narrowing of choices for 
doctors in providing the best treatment for patients as certain 
implant products disappear from the market. One such product 
documented in the study--an implant used in spinal surgery--
will disappear from the market by the end of 1997. Among the 
component parts used in pacemakers, heart valves, and 
catheters, for example, that are difficult, if not impossible 
to obtain, are electronic components and circuitry, specialty 
electrical wires, films used for flexible circuitry, coloring 
agents, and specialty glue.\215\
---------------------------------------------------------------------------
    \215\ See Aronoff Associates, Biomaterials Availability: A Vital 
Health Care Industry Hangs in the Balance (April 1997).
---------------------------------------------------------------------------
  Consumers suffer the most from the crisis in biomaterials 
availability. Nine-year old Tara Ransom of Phoenix, Arizona, is 
one example. Tara is alive today because a brain shunt (a small 
plastic tube) relieves a severe medical condition, 
hydrocephalus--sometimes called ``water on the brain.'' \216\ 
When Tara outgrows her shunt and it needs to be replaced, a 
replacement may not be available, because companies that 
supplied basic ingredients for the medical device will no 
longer do so.
---------------------------------------------------------------------------
    \216\ See Linda Ransom, Lawyers May Kill My Daughter, The Wall St. 
J., March 20, 1996.
---------------------------------------------------------------------------
  The Subcommittee on Consumer Affairs also learned of the 
problems facing consumers through Peggy Phillips. Ms. Phillips 
is a Virginia resident who has survived two episodes of Sudden 
Cardiac Death Syndrome and is the recipient of a device known 
as an Automatic Implantable Cardioverter Defibrillator. She 
testified that, in the current legal environment, it did not 
make sense for raw materials suppliers to continue supplying 
device manufacturers. Ms. Phillips related that one supplier 
spent $8 million annually defending itself in cases involving 
temporomandibular joint (TMJ) implants, even though that 
supplier had no role in the design, manufacture or sale of the 
device. Ms. Phillips noted sales by all suppliers to all TMJ 
implant manufacturers ``totaled $418,000 while sales of this 
same raw material to all other markets totaled $282 million.'' 
\217\ In essence, suppliers will not provide their product to 
medical device manufacturers, because such transactions involve 
low returns and a high risk of very substantial legal costs.
---------------------------------------------------------------------------
    \217\ Testimony of Peggy Phillips, April 4, 1995 hearing, S.Hrg. 
104-435 at 196.
---------------------------------------------------------------------------
  Phyllis Greenberger, Executive Director for the Society for 
the Advancement of Women's Health Research, testified that 
ensuring the availability of implantable medical devices is 
especially important to women. ``Women,'' she testified, are 
disproportionately impacted by a shortage of biomaterials 
``because they live longer than men, and as a result, suffer 
more from chronic disease, increasing their chances of needing 
a medical device, such as hip or joint replacements.'' \218\
---------------------------------------------------------------------------
    \218\ Testimony of Phyllis Greenberger, April 4, 1995 hearing, 
S.Hrg. 104-435 at 213.
---------------------------------------------------------------------------
  On March 4, 1997, the Committee heard from Thomas Deuschle, 
from Liberty, Missouri, and Dr. Steven Gunther, Chief Resident 
of Orthopaedics at George Washington University Hospital in 
Washington, D.C.\219\
---------------------------------------------------------------------------
    \219\ Testimony of Thomas Deuschle, hearing of the Senate Committee 
on Commerce, Science and Transportation, March 4, 1997; Testimony of 
Dr. Steven Gunther, Chief Resident of Orthopaedics at George Washington 
University Hospital in Washington, D.C., hearing of the Senate 
Committee on Commerce, Science and Transportation, March 4, 1997.
---------------------------------------------------------------------------
  Thomas Deuschle told about his daughter, Emma, who was born 
in 1990 with a hole in her heart, a condition known as VDS. 
Emma was born with an extremely low birth weight and was unable 
to gain weight, because her heart condition artificially 
elevated her metabolic rate. After several months, Emma 
underwent open heart surgery to have a heart patch made from 
Dacron polyester material placed over the hole in her 
heart. Today, Emma is a healthy, happy six year old. Her father 
testified that it would have been a personal tragedy if the 
patch made of Dacron polyester had not been available 
for Emma and urged passage of the biomaterials access assurance 
title in the current bill. DuPont, the manufacturer of 
Dacron, has indicated it will no longer supply that 
material to manufacturers of medical devices.
  Dr. Steven Gunther testified about his experience following 
an October 1996 incident in which he sustained second- and 
third-degree burns over sixty-five percent of his body. The 
severity and scope of his burns made the threat of infection 
and dehydration deadly possibilities. Shortly after Dr. Gunther 
sustained his injuries, his legs were wrapped in a new medical 
product known as Integra. Integra is a two layer ``artificial 
skin'' made from bovine collagen and silicone that prevents 
both infection and fluid and electrolyte loss. The Integra 
effectively ``masked'' the burns on his legs, allowing his 
physiological defense mechanisms to focus on those parts of his 
body that did not receive Integra. As a result, the healing 
process was hastened exponentially. Dr. Gunther has now resumed 
his Orthopaedic practice full-time. He strongly urged passage 
of federal biomaterials access assurance legislation.
  Title II of the Act will safeguard the availability of a wide 
variety of lifesaving and life-enhancing medical devices. It 
would allow suppliers of the raw materials (biomaterials) and 
component parts used to make medical implants, to obtain 
dismissal, without extensive discovery or other legal costs, in 
certain tort suits in which plaintiffs allege harm from a 
finished medical implant. Suppliers are not generally liable 
under existing law in such situations, and the Act would not, 
as a practical matter, provide any broader immunity than 
suppliers already have. The point of Title II is not to change 
the standard of liability in any substantial way, but rather to 
protect suppliers from costly litigation that is today putting 
at risk the supply of vital raw materials and components to 
device manufacturers.
  The Act would not apply to claims brought by any person 
alleging harm caused by either the silicone gel or the silicone 
envelope utilized in a breast implant containing silicone gel. 
The Act also would not affect the ability of plaintiffs to sue 
manufacturers or sellers of medical implants.

     The So-Called ``Fraudulent Supplier'' Myth Should Be Rejected

  Some opponents of federal legislation have argued that the 
Act could somehow diminish the protections available under 
existing law to ensure that suppliers do not fraudulently 
misrepresent the safety of their raw materials and components 
for use in medical implants. It would not.
  First, this Committee is not aware of a single reported case 
of a supplier being held liable to a medical implant recipient 
based on proof of fraud. Thus, the notion that the Act would 
provide ``protections'' against such conduct is simply a red-
herring.
  Second, in an appropriate case, a court could hold a supplier 
liable under Title II on the grounds that, as a result of its 
fraudulent misrepresentation, the raw materials or components 
did not constitute the product described in a contract with the 
manufacturer or violated specifications the supplier had 
published or had agreed to.
  Third, the rigorous regulatory safeguards applicable to the 
manufacture of medical devices makes the likelihood of 
fraudulent conduct extremely remote, even in a ``hypothetical 
world.'' The FDA requires manufacturers to safety test raw 
materials and components used in devices and to have systems 
for ensuring that raw materials and components meet 
specifications set forth in contracts with suppliers. 
Accordingly, manufacturers are required to satisfy themselves 
and the FDA that the raw materials and components they use are 
safe. Because of these requirements, most common law courts 
today hold (albeit often after protracted discovery) that 
liability should be placed on the manufacturer, not the 
supplier, regardless of what the supplier knew or should have 
known about its product. In this regard, Title II changes only 
the procedures, but not the results, of cases arising under 
existing law.
  Courts rarely hold suppliers liable if a raw material or 
component is properly manufactured and is inherently safe in 
most of its end uses, but becomes hazardous only as used in a 
particular type of finished product.\220\ Instead, under the 
bulk supplier or learned intermediary doctrine, the 
manufacturer of the finished product is usually held liable. 
Title II preserves this general allocation of liability.
---------------------------------------------------------------------------
    \220\ See, e.g., Kealoha v. E.I. du Pont de Nemours and Co., Inc., 
82 F.3d 894 (9th Cir. 1996) (no liability for supplier of raw material 
used in jaw implants); Crossfield v. Quality Control Equipment Co., 1 
F.3d 701 (8th Cir. 1993) (no liability for supplier of chain used in 
cleaning machine); Childress v. Gresen Manufacturing Co., 88 F.2d 45 
(6th Cir. 1989) (no liability for supplier of valve used in log 
splitter).
---------------------------------------------------------------------------
  Fourth, an additional protection against supplier wrongdoing 
is the ability of a medical device manufacturer to sue its 
supplier. Because Title II addresses the liability of suppliers 
to persons whoclaim to have been injured as a result of an 
implant that incorporates raw materials or components sold by those 
suppliers, it is not intended to restrict any rights other persons may 
have to sue suppliers under a variety of state law theories. The Title 
also would not affect the scope of a supplier's liability to such 
persons under state common law doctrines. As a result, an implant 
manufacturer may sue a supplier for breach of warranty or contract 
violations, if such claims exist under state law, without regard to the 
provisions of this Title.

Section 201--Short title

  Section 201 states this title may be cited as the 
``Biomaterials Access Assurance Act of 1997.''

Section 202--Findings

  Section 202 contains the ``Findings'' upon which this title 
is based.

Section 203--Definitions

  Section 203 defines terms or phrases used in this title. 
Litigation concerning silicone gel breast implants is excluded 
from the Act. This result is accomplished through the 
definition of ``claimant.'' Section 203(2)(D)(iii) excludes 
from the definition of ``claimant'' any person ``alleging harm 
caused by either the silicone gel or the silicone envelope 
utilized in a breast implant containing silicone gel.'' As the 
statutory language makes clear, this exclusion was not based on 
a determination that silicone gel or any other form of silicone 
causes or may cause adverse health effects.
  The Act specifically prohibits the exclusion from being used 
improperly to imply that Congress has made a finding regarding 
the health effect of silicone or silicone implants. Section 
203(2)(D)(iii) specifically states that even the existence of 
this exclusion shall not be disclosed to a jury in any civil 
action or other proceeding. The same section also makes it 
clear that the exclusion shall not be presented in any type of 
proceeding except as necessary to establish the applicability 
of the Act. This would only happen in the unlikely event that a 
defendant in a breast implant case were to assert one of the 
defenses provided by the Act.

Section 204--General requirements; applicability; preemption

  Section 204(a) specifies that, in any civil action covered by 
the title, a biomaterials supplier may raise any defense set 
forth in section 205, and the court must use the procedures set 
forth in section 206 in connection with that defense.
  Section 204(b) states that the title applies to any civil 
action brought by a claimant in Federal or State court against 
a manufacturer, seller, or biomaterials supplier, on the basis 
of any legal theory, for harm allegedly caused by an implant.
  Section 204(c) states that the title preempts State law to 
the extent the bill establishes a rule of law.
  Section 204(d) also states that the title may not be 
construed to affect any defense available under other 
provisions of law to a defendant in an action alleging harm 
caused by an implant, or to create any new Federal cause of 
action.

Section 205--Liability of biomaterials suppliers

  Section 205 restricts the possible liability of biomaterials 
suppliers in lawsuits covered by the title to three situations, 
where the supplier: (I) was itself the manufacturer of the 
implant; (ii) was itself the seller of the implant; or (iii) 
furnished raw materials that failed to meet applicable 
contractual requirements or specifications.
  A supplier may be deemed to be a manufacturer only if the 
supplier registered as such with the FDA pursuant to medical 
device requirements or if the Secretary of HHS issues a 
declaration that the supplier should have registered as a 
manufacturer. Section 205 also establishes a procedure for the 
Secretary to issue such a declaration.
  A supplier may be deemed to be a seller and thus liable in 
situations in which the supplier itself resold the implant 
after it had been manufactured and had entered the stream of 
commerce.
  With respect to contractual requirements, a supplier may be 
liable for harm only if the claimant shows that the 
biomaterials were not the actual product for which the parties 
contracted or the biomaterials failed to meet certain 
specifications and that failure was the cause of the injury. 
The relevant specifications are those: (I) provided to the 
supplier by the manufacturer; (ii) provided by the manufacturer 
(either published, given to the manufacturer, or included in an 
FDA master file); or (iii) included in manufacturer submissions 
that had received clearance from the FDA.

Section 206--Procedures for dismissal of civil actions against 
        biomaterials suppliers

  Section 206(a) establishes a new procedure for dismissal of 
lawsuits against suppliers. A supplier named as a defendant or 
joined as a co-defendant may file a motion for dismissal based 
on the defenses set forth in section 205.
  Section 206(b) specifies additional procedural requirements 
for the lawsuits against suppliers. A plaintiff must sue a 
manufacturer directly whenever jurisdiction over the 
manufacturer is available.
  Section 206(c) establishes procedural requirements for the 
proceeding on a motion to dismiss. Pretrial discovery is 
limited to certain issues and to the scope permitted against 
third parties. A motion on the ground that the supplier is not 
a manufacturer would be automatically granted if the supplier 
had not filed with the FDA as a manufacturer of the implant 
unless the plaintiff obtained a ruling from the FDA that the 
supplier should have registered as a manufacturer. A ruling on 
the supplier's pretrial motion for dismissal is based solely on 
the pleadings and any affidavits.
  Under section 206(d) the court may treat the motion for 
dismissal as a motion for summary judgment if the pleadings and 
affidavits raise genuine issues of material facts with respect 
to a motion concerning compliance with contractual requirements 
and specifications. Discovery is limited to establishing 
whether an issue of material fact exists. The court would grant 
the summary judgment motion unless the plaintiff has submitted 
evidence sufficient to allow a jury to reach a verdict for the 
plaintiff.
  Section 206(e) provides that, if a plaintiff has filed a 
petition with the FDA to obtain a ruling from the FDA that the 
supplier should have registered as a manufacturer, and the 
Secretary has not issued a final decision on the petition, the 
court shall stay allproceedings with respect to that defendant 
until such time as the Secretary has issued a final decision on the 
petition.
  Section 206(f) and (g) change other procedural aspects to 
reduce litigation burdens. The manufacturer, not the supplier, 
may conduct the proceeding on the motion if an appropriate 
contractual indemnification agreement exists. The possibility 
of frivolous claims against a supplier is reduced by permitting 
the court to require the plaintiff to pay attorney fees if the 
plaintiff succeeds in making the supplier a defendant, but 
ultimately is found to have a meritless and frivolous claim.

        TITLE III--LIMITATIONS ON APPLICABILITY; EFFECTIVE DATE

Section 301--Effect of Court of Appeals decisions

  Section 301 provides that a decision by a Federal circuit 
court of appeals interpreting a provision of this Act (except 
to the extent that the decision is overruled or otherwise 
modified by the United States Supreme Court) shall be 
considered a controlling precedent with respect to any 
subsequent decision made concerning the interpretation of such 
provision by any Federal or State court within the geographical 
boundaries of the area under the jurisdiction of the circuit 
court of appeals.

Section 302--Federal cause of action precluded

  Section 302 indicates that the Act does not provide any new 
basis for federal court jurisdiction. The resolution of claims 
subject to this Act is left to state courts or to federal 
courts that currently have jurisdiction over those claims.

Section 303--Effective date

  Section 303 provides that the Act governs any civil action 
subject to the Act that is commenced on or after the date of 
enactment, without regard to whether the harm that is the 
subject of the action or the conduct that caused the harm 
occurred before the date of enactment. The Act does not apply 
to actions filed before the date of enactment, but litigated 
after enactment. As the Act does not apply to such actions, the 
Act also does not apply to actions remanded or appealed after 
the date of enactment, but commenced before that date.

                      Rollcall Votes in Committee

  At the close of debate on S. 648, the Chairman announced a 
rollcall vote on the bill. On a rollcall vote of 11 yeas and 9 
nays as follows, the bill was ordered reported without 
amendment:
        YEAS--11                      NAYS--9
Mr. McCain                          Mr. Hollings
Mr. Stevens                         Mr. Inouye\1\
Mr. Burns                           Mr. Ford
Mr. Gorton                          Mr. Rockefeller
Mr. Lott                            Mr. Kerry\1\
Mrs. Hutchison                      Mr. Breaux
Ms. Snowe                           Mr. Bryan\1\
Mr. Ashcroft                        Mr. Dorgan
Mr. Frist\1\                        Mr. Wyden
Mr. Abraham
Mr. Brownback\1\

    \1\By proxy

                     MINORITY VIEWS OF MR. HOLLINGS

                              INTRODUCTION

  The reporting of this bill marks the fifth consecutive 
Congress in which this Committee has reported legislation to 
federalize our nation's product liability system. Fortunately, 
good-will has prevailed upon members of Congress and prevented 
such measures from becoming law.
  It is well known that I have opposed the passage of federal 
product liability legislation. Philosophically, I believe that 
this is an area of law that is best reserved to the states. I 
am convinced that state and local governments have a better 
idea of what is good for the health and safety of their 
citizens than the United States Congress.
  As I have stated in the past, those who propose such dramatic 
change should, at a minimum, be required to prove that such 
change is warranted, and likely to be effective. The 
proponents, however, have had fifteen years to make their case 
and have failed to do so. Every argument that has ever been 
made in support of this legislation, from the so-called 
litigation explosion to competitiveness, has been totally 
refuted by the data. Unfortunately, the Committee again has 
ordered the legislation reported without such proof. This is 
not sound policy-making nor credible action by this Committee.
  The primary argument in support of the legislation is that it 
is needed because of the excessive litigiousness of American 
citizens. Such behavior reportedly has been stirred by massive 
jury awards, which has precipitated an on-going litigation 
crisis. The so-called litigation crisis allegedly has reduced 
the availability of liability insurance, as well as hindered 
the competitiveness of American businesses. Proponents claim 
that by preempting state law, and imposing national standards, 
the bill will make the liability system more fair and efficient 
for both consumers and businesses.
  These arguments have been thoroughly reviewed and analyzed by 
a number of well respected independent organizations over the 
past decade. They include the Rand Institute for Civil Justice, 
the General Accounting Office (GAO), the Insurance Information 
Institute, the National Association of Insurance Commissioners, 
the National Center for State Courts, the American Bar 
Association, and a number of independent legal experts.
  The common conclusion of the work done by each of these 
groups is that (1) to the extent there was an insurance crisis, 
it was not due to the product liability system, but primarily 
was caused by the underwriting practices of insurance 
companies; (2) the product liability system has no impact on, 
and is not stifling, American business competitiveness; (3) 
products kept off the market because of product liability 
concerns are not necessarily safe or innovative, but rather are 
examples of the system working properly to deter potentially 
dangerous products; and that (4) Americans are not overly-
litigious, nor or product liability lawsuits out of control or 
burdening the courts.
  Specifically, the proponents claim that the legislation is 
needed to make insurance more available and affordable, 
particularly for small businesses. Volumes of evidence have 
been presented, however, demonstrating that these insurance 
problems are not, and were not, due to product liability. To 
the extent there was an insurance crisis, it was caused by 
insurance companies' underwriting practices, not the product 
liability system. During the late 1970s, insurance companies 
attempted to market low-premium products to expand market 
share, while generating investment income. When the market 
declined, and investment rates didn't positively correspond, 
companies raised premiums to cover potential losses. Instead of 
acknowledging that premium increases were necessitated because 
of their underwriting practices, however, the industry targeted 
and blamed the product liability system. This marked the 
beginning of the mythical litigation crisis, which has become 
the basis for this legislation. The litigation myth has been 
recognized by a number of respected organizations, including 
the Risk and Insurance Management Society (RIMS), which is 
comprised of some of the largest industrial corporations in the 
country. During the mid-eighties, the organization expressed 
serious concern about linking tort reform legislation and the 
insurance availability crisis.
  Even if the bill is passed, however, the insurance industry 
has testified before the Committee that such measures will have 
virtually no effect on insurance costs. Realistically, the only 
way to determine the impact of claims, or any legislation, on 
insurance rates is through the collection of objective data on 
insurance costs. I have offered, on several occasions, 
legislation to require the collection of data for such 
purposes. These measures have been strongly supported by small 
businesses. The supporters of S. 648, however, have strongly 
opposed insurance data collection. I truly question the intent 
of the bill if it is not designed to reduce insurance costs 
(which is the bulk of litigation expenses for most businesses), 
and how there will be an actual understanding of the 
legislation without the proper data.
  The proponents' assertion that product liability is hindering 
the competitiveness of American businesses also is without 
merit, and has been unequivocally refuted by numerous studies 
and surveys. A recent survey by RIMS revealed that liability 
insurance costs for most businesses are less than 1% of total 
revenues. A Conference Board survey of risk managers of 232 
corporations shows that product liability costs for most 
businesses are 1% or less of the final price of a product, and 
have very little impact on larger economic issues, such as 
market share or jobs. A Rand Corporation study found that less 
than 1% of U.S. manufacturers are ever named in a product 
liability lawsuit, and concluded that ``available evidence does 
not support the notion that product liability is crippling 
American business.'' The General Accounting Office (GAO) 
recently stated that it could find ``no acceptable methodology 
for relating product liability to competitiveness,'' and that 
businesses refuse to release the information needed to conduct 
such an analysis.
    As part of their competitiveness arguments, the bill's 
supporters contend the liability system is impeding the 
introduction of potentially life-saving drugs and medical 
products by the drug and medical device companies. However, 
according to testimony from drug companies themselves, the 
United States is the world leader in developing new medicines, 
and that U.S. companies have been responsible for about half of 
the new patented drugs that have reached the global market 
since 1970. A recent report by Fortune magazine rated the 
American pharmaceutical industry the number one industry in the 
United States with respect to competitiveness. These reports 
make clear that if the product liability system is impeding the 
competitiveness and the introduction of new products by the 
U.S. drug industry, it certainly is not evident in the 
industry's market performance.
    The supporters of the bill also claim that foreign 
businesses have an advantage over American businesses because 
of the more restrictive civil rules in other countries. 
However, what the bill's supporters fail to recognize is that 
the American judicial system is premised upon a democratic 
structure, whereby the people, as jurors, resolve conflicts. 
The American jury system, indeed, differs from the judicial 
system of other countries that are predicated upon elite 
structures such as permitting singularly appointed judges to 
resolve conflicts rather than juries. There is no justification 
for compromising this cherished liberty in our country.
    Additionally, if it is true that foreign businesses have an 
advantage over American businesses, such disparities will not 
be alleviated by this bill. Because the legislation makes no 
distinction between foreign and American businesses, whatever 
advantages foreign businesses have because of the structure of 
their governments will remain. The only result will be that 
foreign businesses will be able to take advantage of their 
home-country legal restrictions, as well as the legal 
limitations that will be imposed on American citizens. The big 
loser is the American consumer.
    The proponents' assertion that there is a litigation 
explosion and that Americans are overly litigious is also a 
false argument. A recent Rand Corporation study found that only 
1 out of every 10 Americans that are injured due to product 
hazards ever seeks compensation through the tort system. Of 
these cases, two-thirds involve motor vehicle accidents, not 
product liability suits. The study concluded that Americans' 
behavior does not accord with the more extreme 
characterizations that some have put forward of an overly 
litigious society. In fact, a study by Professor Marc Galanter 
of the University of Wisconsin Law School has found that the 
real increases in litigation in recent years have involved 
businesses suing each other for multi-million dollar claims, 
not injured persons seeking redress of their rights. 
Nevertheless, the legislation has been written to ensure that 
business suits are not affected by the restrictions in the 
bill.
    The proponents will cite statistics which indicate that 
there were increases in product liability claims during the 
1980s. However, what they fail to acknowledge is that a 
majority of these product liability filings involved highly 
dangerous products. Those products included asbestos, the 
Dalkon Shield, and the Copper 7 IUD. Suits against asbestos 
manufacturers revealed that the manufacturers knew that the 
substance was cancerous, but made a profit motive decision to 
withhold the information from the public. Cases involving the 
Dalkon Shield, an intrauterine device for birth control, 
revealed that the manufacturer knew the device could cause 
women to suffer life-threatening spontaneous abortions, but 
made no attempt to warn users of such dangers. One judge called 
the device ``a ticking time bomb in women's wombs.'' In a case 
involving the Copper 7 IUD, the court concluded that the 
plaintiff presented evidence to show that the company 
``knowingly placed millions of American women, especially 
[women who have not had children], at risk of serious 
infection, loss of fertility, and surgery for the removal of 
internal organs.'' Each of these manufacturers was forced to 
withdraw their products from the market, which is one of the 
purposes of the product liability system. Yet, proponents are 
still imposing restrictions on the system that would, in 
effect, make it more difficult to sue individuals who engage in 
such conduct.
    While these attempts at justification for the bill are 
groundless, I am equally concerned about various specific 
provisions in the bill that adversely will impact consumers. 
Proponents of the legislation have described the bill as one 
that is designed to achieve fairness and balance. However, they 
are as inconsistent in their claims about the intent and impact 
of the legislation as they are in their arguments justifying 
the need for the bill.
    Proponents claim the bill is needed to make the judicial 
system more fair and efficient, and more responsive to injured 
consumers. These objectives, however, certainly are not evident 
in the legislation. For example, proponents argue that the 
legislation is designed to establish uniform rules. However, 
the bill, in most instances, only selectively preempts state 
law. This selective preemption is designed to ensure that state 
laws are preempted only to the extent the law does not comport 
with the interest of the business community.
    The punitive damages section clearly illustrates this 
inconsistency. The bill purports to establish national 
standards on punitive damages. Yet, the legislation would 
preempt state law only if the state permitted the assessment of 
punitive damages. Thus, states that do not permit punitive 
awards would not have their law disturbed. This clearly will 
not result in a uniform system of punitive damages. Since 
manufacturers and sellers would rather not be subjected to 
punitive damages at all, the bill is designed in a way to 
accommodate that interest. This political maneuvering, however, 
makes the bill one-sided, and non-uniform.
    The bill also fails to meet the proponents' fairness 
claims. This contradiction also is demonstrated in the punitive 
damages section. First, the legislation contains arbitrary caps 
on punitive damages. It is unclear why such caps are necessary 
since punitive damages are rarely awarded in product liability 
cases. Second, as applied, the bill would discriminate based on 
income. The legislation provides that punitive damages are to 
be capped at two times economic and non-economic damages or 
$250,000, whichever is greater. By basing the cap on economic 
damages (income and wealth), the bill will create a law that 
will allow for higher punitive awards in cases involving harm 
to wealthy citizens. The obvious message of such law is that 
the greater a plaintiff's wealth, the more a company should be 
punished. The bill's supporters have argued that since the 
formula also is linked to pain and suffering damages, the 
disparities based on wealth will be alleviated. I do not 
discern the validity of this argument, since one would presume 
that rich and poor citizens will incur the same amount of pain 
and suffering.
    A provision has been incorporated into the bill to allow 
judges to increase awards beyond the cap (an authority not 
given to juries), if the judges determine the cap to be 
insufficient. This provision purportedly is designed to reduce 
the unfairness of the punitive damages section. Judges in most 
jurisdictions, however, are constitutionally prohibited from 
increasing awards independently of juries, and without the 
consent of the parties. Thus, if the legislation becomes law, 
the likely scenario is that the authority granted to judges 
will be deemed unconstitutional, leaving the arbitrary cap in 
tact. Furthermore, it is questionable why Congress would 
propose a law it recognizes as unfair, and then shift the 
responsibility to judges to rectify the problem. If the 
provision is bad policy, it should never be proposed by this 
body. It also is questionable as to why Congress would engage 
itself in such intimate and minute legal issues, such as the 
determination of damages, in a field of law in which it has no 
experience in regulating.
    Moreover, the proposed caps will undermine the real intent 
of punitive damages--which is to hold out the possibility that 
an individual will face extreme punishment, so as to deter 
egregious and willful conduct. Numerous cases have shown the 
significant role punitive damages, and the threat of 
litigation, have played in forcing the removal of highly 
dangerous products from the market. Only after a $10 million 
punitive damage award against Playtex did that company remove 
from the market tampons linked to Toxic Shock Syndrome in 1988. 
The 10th Circuit Court of Appeals found that ``Playtex 
deliberately disregarded studies and medical reports linking 
high-absorbency tampon fibers with increased risk of toxic 
shock.'' Notwithstanding such conduct, if S. 648 had been the 
law at that time, the company's punitive damages would 
potentially have been limited to $250,000 in cases involving 
working-class and low-income women. Does it really make sense 
that such a small penalty would have sent a serious message to 
this company?
    It is perplexing why proponents are seeking to protect 
individuals who engage in such conduct by limiting the amount 
of punitive damages that can be assessed against them. It is 
not surprising that so many Americans are wondering what is 
happening in Washington.
    The proponents argue that the two-way preemption provision 
in the 18-year statute of repose section is evidence of the 
bill's consumer benefits. By preempting states that have 
statutes providing for shorter periods of repose, the bill 
allegedly will provide consumers in those states a more 
favorable period for seeking compensation through the tort 
system.
    According to the Congressional Research Service (CRS), 
however, the legislation will have the opposite effect. CRS' 
research shows the bill actually would reduce rights currently 
available to consumers in over 30 states. Additionally, the 
provision is severely more stringent than provisions in 
previous product liability reform bills. In past bills, the 
statute of repose was limited to work-place products.S. 648, 
however, applies to all consumer products. They include home 
appliances, such as furnaces and garage doors, as well as devices 
subject to common usage by the public, such as elevators and 
recreational equipment. Persons injured by such devices would be 
completely barred from suing if the device was more than eighteen years 
old. This bar would apply even if there is evidence that the 
manufacturer, seller, or business knew the device was dangerous and 
defective.
    Moreover, it is interesting that the statute of repose two-
way preemption provision is being touted as evidence of the 
bill's pro-consumer benefits, since the other provisions, such 
as the punitive damages and joint and several liability 
sections, do not contain two-way preemption provisions. 
Supporters of the bill have gone through great strides of 
ensuring that they do not create any cause of action whatsoever 
for such damages. Thus, consumers in jurisdictions without 
punitive damages will not receive the benefit of the 
protections punitives provide; however, consumers in states 
that allow for punitive damages will have the deterrence factor 
of such damages diminished by arbitrary caps.
    The proponents are proposing to completely bar suits 
against suppliers of biomaterials and component parts that are 
used in medical devices. This bar would apply even if there is 
evidence that the substance or device caused the harm and the 
suppliers knew of such dangers. This is one of the issues the 
President highlighted in his veto message of last year. There 
is absolutely no basis for this wholesale exemption, since 
there is no evidence that the medical device industry or 
suppliers are burdened by product liability lawsuits.
    The legislation eliminates joint liability for damages for 
pain and suffering (non-economic damages). Joint liability 
simply means that all persons involved in distributing and 
profiting from a dangerous or defective product, and who have 
engaged in irresponsible behavior that led to the plaintiff's 
injury caused by the product, are to be held liable for the 
plaintiff's harm. The social policy behind this doctrine is 
that all defendants involved in profiting from the product, and 
from distributing the product in the stream of commerce, should 
bear the responsibility for the defects and dangers associated 
with the product, not the injured person. Instead of holding 
all responsible, however, S. 648 proposes to divide negligent 
defendants' responsibilities into arbitrary percentages--e.g., 
5% at fault or 10% at fault.
    The provision also on its face is inherently contradictory. 
It retains joint and several liability for economic damages 
(medical bills) but eliminates it for pain and suffering 
damages. This suggests that the bill's supporters are willing 
to hold all parties responsible to make sure plaintiffs' bills 
are paid, but are not willing to hold all negligent parties 
responsible to ensure plaintiffs are securely compensated for 
the actual damages due to them for their pain and suffering.
    These are just a few examples of the dangerous portent of 
this bill to consumers, as well as the contradictions in the 
supporters' arguments about the need for and intent of the 
legislation. Clearly, we should not misunderstand the purpose 
of this legislation. It is written for the benefit of the 
business community, not for consumers or to make the system 
more uniform. The danger posed by this legislation is 
demonstrated by the groups opposed to its passage. These 
organizations include over 100 consumer and health groups. They 
include the Consumer Federation of America, Public Citizen, 
Consumers Union, the American Public Health Association, and 
the Women's Legal Defense Fund. They all have warned about the 
dire consequences the bill will have on American consumers.
    As I have stated in the past, if there are issues that need 
to be examined in the tort system, they already are being 
addressed by the states, where this issue belongs. Since 1983, 
46 states have enacted measures involving tort reform. The 
states--through their work with members of the bar, chambers of 
commerce, the insurance industry, and consumer groups--have 
addressed concerns about the tort system, and have crafted 
legislation they believe is in the best interest of their 
citizens. The proponents of S. 648, however, would override the 
enormous and commendable effort and time the states have 
devoted to this issue, and force their own brand of reform on 
the states.
    I yield to no one in my desire to assist American 
businesses in every way possible. However, I urge my colleagues 
to insist, at a minimum, on some objective demonstration that 
federal product liability law is a reasonable means to address 
the problems of the business community. The evidence is clear 
that if the majority of Committee members were really concerned 
about U.S. business competitiveness and creating jobs, the 
Committee would be addressing more serious and relevant issues 
that really affect businesses. This Committee has jurisdiction 
over a wide range of important economic issues, such as trade, 
international antitrust, insurance regulation, and competition 
in the market place. It would well serve the Committee, the 
American public, and the business community, if more time were 
dedicated to these matters, instead of measures like this 
legislation.
    In the discussion below, I have set out in more detail the 
facts that have been developed on this issue, and why I believe 
we should not move forward on this bill.

             THERE IS NO FACTUAL BASIS FOR THIS LEGISLATION

      I. The Current System Achieves Fair Results, and There Is No 
                      ``Explosion'' of Litigation

    Before we make dramatic changes in product liability law, 
we should, at the least, have information to demonstrate that 
the current system needs fixing. It is not achieving its 
purpose of fairly and properly compensating victims of 
defective products, or of deterring the marketing of unsafe 
products. As each additional piece of objective data becomes 
available, it becomes more clear that the system is working. 
The number of non-asbestos product liability cases is actually 
declining, punitive damages are a rare occurrence, and 
compensatory awards are reasonably related to the cost of the 
injuries involved.
    In 1991, the Rand Corporation released a report on civil 
claims and compensation, which found that only 10% of persons 
that are injured by defective products seek some form of 
compensation through the tort system. A mere 2% actually goes 
forward with filing a lawsuit.\1\ The report further found that 
only 7 percent of all compensation for accident victims is paid 
through the tort system.\2\ This low level of compensation is 
obviously due to the reluctance of injured persons to file 
claims or lawsuits. The report concluded that ``most Americans 
who are injured in accidents do not turn to the liability 
system for compensation. . . . In this respect, Americans' 
behavior does not accord with the more extreme 
characterizations of litigiousness that have been put forward 
by some.'' \3\
---------------------------------------------------------------------------
    \1\ Hensler, et al., ``Compensation for Accidental Injuries in the 
United States,'' Rand Corporation, Institute for Civil Justice (1991), 
Executive Summary at 18. See also testimony of Dr. Deborah Hensler, 
Consumer Subcommittee Hearing on S. 640, September 12, 1991, statement 
at 6.
    \2\ Id.
    \3\ Id., Executive Summary at 18, 20.
---------------------------------------------------------------------------
  The most recent statistics from the National Center for State 
Courts on state civil filings show that product liability cases 
constitute only 4% of all state tort filings, and a mere 36 
hundredths of one percent (.0036) of all civil cases.\4\
---------------------------------------------------------------------------
    \4\ National Center for State Courts, ``State Court Caseload 
Statistics: Annual Report 1989,'' (February 1991) at 46. State Court 
Caseload Statistics, supra n. 5, at 45-6.
---------------------------------------------------------------------------
  Jury Verdicts, Inc., has found in its recent studies that 
juries nationwide have become much tougher on plaintiffs.\5\ 
The report revealed that a plaintiff's chances of winning in 
tort cases decreased from 65% to 42% between 1987 and 1992, and 
among product liability cases specifically, the percentage of 
favorable verdicts for plaintiffs fell from 59% to 41% between 
1989 and 1993.\6\ The report also indicated that there have 
been major declines in the number of cases filed and the size 
of awards.\7\
---------------------------------------------------------------------------
    \5\ New York Times, Friday, June 17, 1994.
    \6\ Id.
    \7\ Id.
---------------------------------------------------------------------------
  In 1992, Professors James Henderson--a supporter of tort 
reform--and Theodore Eisenberg of Cornell University released a 
study, ``Inside The Quiet Revolution In Products Liability,'' 
which also found notable declines in the number of product 
liability cases filed, as well as significant decreases in the 
size of awards.\8\ The study concluded that by most measures, 
product liability has returned to where it was at the beginning 
of the decade. The study confirmed Professors Henderson's and 
Eisenberg's findings in an earlier study, which found a ``quiet 
revolution . . . away from extending the boundaries of products 
liability and toward placing significant limitations on 
plaintiffs' rights to recover in tort for product-related 
injuries.'' \9\ Specifically, they found that in 1976 and 
continuing to 1983, defendants benefitted in roughly 51 percent 
of product liability cases. By 1988, defendants prevailed in 
63.4 percent of product liability cases. The study concluded 
that, even if product liability cases could be characterized as 
unfairly favoring plaintiffs in the past, the current trend is 
clearly favoring defendants.
---------------------------------------------------------------------------
    \8\ Henderson and Eisenberg, ``Inside the Quiet Revolution In 
Products Liability,'' 39 U.C.L.A. Law Review 731, 743 (1992).
    \9\ Henderson and Eisenberg, ``The Quiet Revolution in Products 
Liability: An Empirical Study of Legal Change,'' 37 U.C.L.A. Law Review 
479, 480 (1990).
---------------------------------------------------------------------------
  The GAO in 1989 completed one of the first extensive reviews 
of data related to state court product liability cases.\10\ 
Since most product liability cases are litigated in state 
court, and most of the past data has been only from the federal 
courts, this report is very significant. GAO found that the 
size of compensatory awards varied by type and severity of 
injury in a manner consistent with underlying economic loss, so 
that compensatory awards were neither erratic nor 
excessive.\11\ It further found that plaintiffs won fewer than 
50 percent of the cases litigated, that awards were based on 
negligence in almost three-quarters of the cases (even in the 
states that permit recovery based on strict liability without a 
demonstration of negligence), and that the amount of punitive 
damages awarded was highly correlated with the size of 
compensatory damages.\12\
---------------------------------------------------------------------------
    \10\ U.S. General Accounting Office, ``Product Liability: Verdicts 
and Case Resolution in five States,'' GAO/HRD-89-99 (September 1989). 
Hereafter referred to as ``1989 GAO Report.''
    \11\ Id. at 27.
    \12\ Id. at 29-31.
---------------------------------------------------------------------------
  Additionally, in testimony submitted to the Committee in 
September of 1991, Professor Marc Galanter of the University of 
Wisconsin Law School stated that, if asbestos cases are 
excluded, the number of product liability cases in the federal 
courts has declined in the last 5 years--from 8,268 cases in 
1985 to 4,992 in 1991, a 40 percent decrease.\13\ He indicated 
that asbestos filings accounted for all the increases in 
product liability filings in the 1980s, and that asbestos cases 
are quite distinct in that they involve a product of 
``unparalleled deadliness to which there was massive exposure 
that continued long after the dangers of its use were suspected 
and suppressed.'' \14\
---------------------------------------------------------------------------
    \13\ Testimony of Professor Marc Galanter, Director, Institute of 
Legal Studies, University of Wisconsin Law School, before the Consumer 
Subcommittee September 19, 1991, transcript at 86-87. See also Galanter 
and Rogers, ``A Transformation of American Business Disputing? Some 
Preliminary Observations,'' working paper #DPRP 10-3, Institute for 
Legal Studies, University of Wisconsin (April 1991).
    \14\ Galanter testimony, supra, transcript at 88.
---------------------------------------------------------------------------
  Professor Galanter's findings are similar to reports of 
federal civil filings by the GAO \15\ and the Rand Corporation 
\16\, which have shown that one product, asbestos, accounted 
for approximately 60 percent of the growth in filings between 
1976 and 1986.\17\ GAO further found that, since 1981, product 
liability cases have grown at about the same rate as other 
civil filings and at the same rate as personal expenditures on 
goods, with growth of product liability cases at 4 percent, 
personal expenditures on goods at 4 percent, and civil filings 
at 6 percent.\18\ The author of the Rand study has stated that 
``[m]y feeling is that the available evidence doesn't support 
the notion that products liability is crippling American 
business.'' \19\
---------------------------------------------------------------------------
    \15\ U.S. General Accounting Office, ``Product Liability: Extent of 
`Litigation Explosion' in Federal Courts Questioned,'' GAO/HRD-88-36BR 
(January 1988).
    \16\ Dugworth, ``Product Liability and the Business Sector: 
Litigation Trends in Federal Courts,'' Rand Corporation, The Institute 
for Civil Justice, R-3668-ICJ (1988).
    \17\ GAO Report, supra, note 12, at 32, 43.
    \18\ Id. at 32, 43.
    \19\ Wall Street Journal, ``Survey Questions Liability Crisis at 
U.S. Companies,'' January 18, 1989.
---------------------------------------------------------------------------

                    II. The Real Litigation Explosion

  According to Professor Galanter, the real increase in 
litigation in recent years has been in businesses suing 
businesses, not consumers seeking compensation through the 
product liability system.\20\ For example, contract filings in 
federal courts increased by 232 percent between 1960 and 1988, 
and by 1988 were the largest category of civil cases in the 
federal courts.\21\ Statistics compiled from the National Law 
Journal's annual reports on major civil verdicts show that, 
since 1989, 73% of the largest civil verdicts in the nation 
have involved business litigation, not product liability 
cases.\22\ Between 1987 and 1994, just 76 of the largest 
verdicts alone accounted for more than $10 billion.\23\ 
Statistics from the National Center for State Courts show that 
at least several hundred thousand business and contract cases 
were pending during this period.\24\
---------------------------------------------------------------------------
    \20\ Supra at 13.
    \21\ Id.
    \22\ See National Law Journal Annual Reports on Largest Civil 
Verdicts (1990-1994).
    \23\ Id.
    \24\ Supra at 4.
---------------------------------------------------------------------------
  The Harvard Business Review recently featured a report on 
corporate litigation and Alternative Dispute Resolutions (ADR) 
which provided an insightful view on the litigious behavior of 
businesses. Although ADRs are designed to avoid litigation and 
save costs, such hopes have faded for businesses as a result of 
legal billings, high damage awards, and the propensity of 
businesses to litigate.\25\ The report indicated that ADRs have 
become for businesses a disguise for litigation, sometimes 
costing more than a normal court proceeding.\26\ In addition, 
businesses often prefer litigation to ADR. A survey found that 
few senior corporate managers are willing to forgo a chance to 
win a courtroom triumph. A top lawyer of a major company stated 
that ``CEOs want to be able to take the other guy to the 
cleaners if they believe that they're in the right, and are 
going to bet the ranch if they have to.'' \27\ Yet the 
proponents do nothing in the legislation to address the 
problems associated with business litigation. In fact, they 
have purposely exempted business suits from the bill.
---------------------------------------------------------------------------
    \25\ Harvard Business Review (May-June 1994) at 120.
    \26\ Id.
    \27\ Id. at 123.
---------------------------------------------------------------------------

               III. Juries Rarely Award Punitive Damages

  Much has been made of the unpredictability of results in 
product liability trials. However, it has been recognized, as 
it must be, that most of this is due to our jury system. I 
cannot believe any of my colleagues want to tamper with that 
system. When a product liability case goes to trial, the jury 
is not impaneled for the purpose of giving away someone else's 
money. Rather it is charged with the administration of justice. 
These juries are composed of our friends and neighbors, who 
conclude, some of the time, that the defective products 
involved and the injuries sustained require compensation. And 
it is our friends and neighbors--who work for a living and know 
the value of a dollar--who occasionally conclude that punitive 
damages are justified when the defendant has engaged in 
outrageous behavior. Moreover, these are the same citizens who 
vote to elect members of Congress. Why is it that they can be 
charged with the important responsibility of electing members 
of this body, but lack the ability to resolve disputes in 
product liability cases?
  If there is an issue that has been terribly exaggerated in 
this debate, it is the issue of punitive damages. Much new data 
is available on punitive damages, which show, among other 
things, that very few punitive damage awards have been made in 
all state and federal product liability cases over the last 25 
years. Punitive damages simply are not a factor in any but the 
rare product liability case, and have little effect on the 
business community. Dr. Stephen Daniels of the American Bar 
Foundation conducted a nationwide study of over 25,000 civil 
jury awards between 1981 and 1985. The study found that 
punitive damages were awarded in only 4.9% of the cases 
reviewed.\28\ He stated that the debate over punitive damages 
``changed in the 1980s as a part of an intense, well-organized, 
and well-financed political campaign by interest groups seeking 
fundamental reforms in the civil justice system benefiting 
themselves.'' He went on to state that this ``politicization of 
the punitive damages debate . . makes the debate more emotional 
and manipulative, and less reasoned. The reformers appeal to 
emotions, fear, and anxiety in this political effort while 
avoiding reason and rational discourse.'' \29\
---------------------------------------------------------------------------
    \28\Daniels and Martin, ``Myth and Reality in Punitive Damages,'' 
75 Minn. Law Review 1, 10-12 (Oct. 1990).
    \29\Testimony of Dr. Stephen Daniels, Consumer Subcommittee Hearing 
on S. 640, September 12, 1991, transcript at 122.
---------------------------------------------------------------------------
  He concluded that punitive damages were not routinely 
awarded, were awarded typically in modest amounts, and were 
awarded more often in financial and property harm cases 
[business v. business] than in product liability cases.\30\ His 
research also pointed up the errors in the data from Cook 
County, IL, and San Francisco, CA, which in the past have been 
cited by supporters of bills like S. 648 as indicative of the 
nationwide pattern on punitive damages. He found that there 
were flaws in the method of data analysis used, and that it was 
inappropriate in any event to generalize from data in two 
counties to a nationwide trend.\31\
---------------------------------------------------------------------------
    \30\74 Minn. L.Rev., supra., at 43.
    \31\Id. at 22-27.
---------------------------------------------------------------------------
  On April 4, 1995, Dr. Daniels, testifying before the 
Committee, submitted data on a study he conducted to review his 
initial findings. Using the same database in a review of the 
same sites for years 1988-1990, he found that punitive damages 
were again awarded at an extremely low rate--4.8%.\32\ The 
study confirmed his earlier findings that such awards are more 
of an aberration than the norm.
---------------------------------------------------------------------------
    \32\See testimony of Dr. Stephen Daniels, Consumer Affairs, Foreign 
Commerce and Tourism Subcommittee Hearing on S. 565, April 4, 1995.
---------------------------------------------------------------------------
  Dr. Daniels' findings are similar to those by Professor 
Michael Rustad of Suffolk University Law School and Professor 
Thomas Koening of Northeastern University. The Supreme Court 
recently referred to this report as ``the most exhaustive study 
of punitive damages''. Professors Rustad and Koening reviewed 
all product liability awards from 1965 to 1990 in both state 
and federal courts. During that time, punitive damages were 
awarded in only 355 cases--only 355 total punitive damages 
awards in 25 years! One quarter of all those awards involved 
one product--asbestos. Another one quarter of those cases was 
reversed or remanded upon appeal. They further found that the 
amount of punitive damage awards was not skyrocketing, and in 
35 percent of the cases in which punitive damages were awarded 
they were less than the amount of compensatory damages. They 
concluded that ``[t]here is a widespread misperception that 
punitive damage awards are skyrocketing because of frivolous 
lawsuits . . . .'' \33\
---------------------------------------------------------------------------
    \33\Rustad and Koenig, ``Demystifying the Functions of Punitive 
Damages in Products Liability: An Empirical Study of a Quarter Century 
of Verdicts,'' Executive Summary at 11-15, 1. See also testimony of 
Professor Michael Rustad, Consumer Subcommittee Hearing on S. 640, 
September 19, 1991, transcript at 74-78.
---------------------------------------------------------------------------
  By reviewing the data representative of the entire system, as 
opposed to the few anecdotes of high damage awards often cited 
by the supporters of this bill, we see that the system is not 
out of control in terms of numbers of cases filed or amount of 
compensation awarded. It also is important to note the 
beneficial aspects of the current system that stand to be 
undermined if this bill is enacted, as discussed below.
  As indicated by testimony at the Committee's September 23, 
1993 hearing, if a manufacturer is not engaged in flagrant 
disregard of safety, pursuant to the standard set under section 
108 of the bill, then that manufacturer does not have to be 
concerned about punitive damages.\34\ The possibility of 
punitive damages provides an important deterrent which helps to 
insure that manufacturers police themselves. We must require 
continued maximum vigilance from the manufacturers themselves. 
In its recent decision in TXO Production v. Alliance Resources 
(June 25, 1993, No. 92-479), the Supreme Court soundly rejected 
attempts to limit or abolish punitive damages.
---------------------------------------------------------------------------
    \34\See Testimony of Lucinda Finley, Consumer Affairs, Foreign 
Commerce and Tourism Subcommittee Hearing, April 4, 1995.
---------------------------------------------------------------------------

            IV. Punitive Damages Cases That Made A Difference

  There is ample evidence demonstrating the benefits the 
product liability system and the threat of punitive damage 
awards have had in the removal of dangerous products from the 
market and potentially saving thousands of lives. The following 
are a few examples:
  In 1980, a manufacturer of highly flammable pajamas stopped 
making the garment only after a $1 million punitive damages 
award for the severe burns caused to a 4-year-old girl when her 
pajama top caught on fire. She suffered 2nd and 3rd degree 
burns over her upper body. Her scars are permanent, and she has 
suffered through several skin graft procedures. The company was 
well aware of the garment's flammability, as several other 
claims had been filed for similar injuries. The court quoted 
one company official as saying that the company was ``always 
sitting on a power keg,'' even though treating the pajamas with 
flame-retardant chemicals was economically feasible. Gryc v. 
Dayton Hudson Corp., 297 N.W.2d 727 (Minn. 1980), cert. denied, 
101 S. Ct. 320 (1980).
  *Only after a $10 million punitive damage award against 
Playtex did the company remove from the market tampons linked 
to Toxic Shock Syndrome in 1988. In this case, Betty O'Gilvie 
died from Toxic Shock Syndrome after using Playtex's super-
absorbent tampons. The 10th Circuit Court of Appeals found that 
``Playtex deliberately disregarded studies and medical reports 
linking high-absorbency tampon fibers with increased risk of 
toxic shock at a time when other manufacturers were responding 
to this information by modifying or withdrawing their high-
absorbency tampons.'' O'Gilvie v. International Playtex, Inc., 
609 F. Supp. 817 (D. Kan. 1985), rev'd, 821 F2d 1438 (10th Cir. 
1987), cert. denied, 108 S.Ct. 2014 (1988).
  *In this case, it took the Ford Motor Company two verdicts 
before it decided to address the ``illusory park'' defect in 
its automobiles. This defect in car transmissions manufactured 
between 1970 and 1979 gave the operator the impression that the 
car was secured when it was not. Vibration or slamming of car 
door could cause the automobile to move in reverse. About 90 
injuries were reported as a result of this defect. A 1973 
Lincoln suddenly moved backwards and ran over a woman's legs as 
she was unloading groceries. A jury found the transmission 
design was defective and that Ford had failed to properly warn 
consumers of the problem. It awarded compensatory damages and 
assessed $4 million in punitive damages. A few months later, 
Ford eliminated the ``illusory park'' position hazard. Ford 
Motor Co. v. Bartholomew, 297 S.E. 2d 675 (Va. 1982); Ford 
Motor Co. v. Nowak, 638 S.W.2d 582 (Tex. App. 1982).

              V. The Current System Promotes Product Safety

  One of the primary effects of the current system is to 
promote product safety--to make manufacturers more careful in 
the design and production of their products. In a 1987 
Conference Board survey, risk managers of some of the nation's 
largest corporations stated that ``[w]here product liability 
has had a notable impact--where it has most significantly 
affected management decision making--has been in the quality of 
the products themselves.'' Managers say products have become 
safer, manufacturing procedures have been improved, and labels 
and use instructions have become more explicit.\35\
---------------------------------------------------------------------------
    \35\``Product Liability: The Corporate Response,'' The Conference 
Board Report No. 893 (1987) at 2.
---------------------------------------------------------------------------
  The increasing number of product safety managers inside 
corporations also is evidence of the impact the system is 
having on safety. According to the Consumer Federation of 
America (CFA), only a small minority of companies had a product 
safety management position in the early 1970s. By the end of 
the 1970s, virtually all companies had a very strong product 
safety presence in their management structure. CFA also has 
found that there has been a dramatic change in the rate of 
accidental injuries and deaths in the United States, so that 
``approximately 6,000 deaths and millions of injuries have been 
prevented on an annual basis now because of product liability 
and other forces towards greater safety in our society.`` \36\
---------------------------------------------------------------------------
    \36\Testimony of Gene Kimmelman, Legislative Director, Consumer 
Federation of America, at Consumer Subcommittee Hearing on S. 1400, 
April 5, 1990, transcript at 77-78.
---------------------------------------------------------------------------
  Moreover, Professor Rustad in his survey of punitive damage 
awards found that 190 of the 252 non-asbestos defendants who 
were subject to punitive damage awards between 1969 and 1990 
``have taken some safety step in the wake of punitive damages 
litigation. In eighty percent of these cases, there were steps 
such as fortified warnings, product withdrawals, and safety 
features added to products which followed shortly after the 
[litigation].`` \37\
---------------------------------------------------------------------------
    \37\Rustad, supra, executive summary at 28.
---------------------------------------------------------------------------
    A similar finding was made by Professors Nicholas Ashford 
and Robert Stone of MIT, in work done for inclusion in ``The 
Liability Maze,'' a collection of articles on product 
liability, innovation, and safety.
    Professors Ashford and Stone researched the effect of 
product liability on the chemical industry. They found that 
manufacturers pay ``no more than 5 percent, and often less than 
0.1 percent, of the corresponding social costs'' of the chronic 
injuries caused by chemicals.\38\ They concluded that, although 
the system is not stringent enough on the manufacturers to 
provide appropriate deterrence to prevent all unsafe products, 
it still has helped in the development of safer products. They 
recommend, however, that if the liability system were more, not 
less, stringent with respect to manufacturers it would be even 
more effective in promoting safety and innovation.\39\
---------------------------------------------------------------------------
    \38\ Ashford and Stone, ``Liability, Innovation, and Safety in the 
Chemical Industry,'' in The Liability Maze (Brookings 1991) at 414.
    \39\ Id. at 415-417.
---------------------------------------------------------------------------
    The editor of ``The Liability Maze,'' Peter Huber, has 
suggested that the work by Professors Ashford and Stone is 
somehow unique. However, Professor Ashford has responded that 
he and other authors of the book found it impossible to 
separate innovation and safety, and found that ``the liability 
system can both promote safety and innovation of desirable 
products and discourage unsafe products though they may be 
innovative.'' Professor Ashford goes on to state that ``we 
believe most scholars would subscribe to our methodology...`` 
\40\
---------------------------------------------------------------------------
    \40\ Letter from Professor Nicholas Ashford to Senator Ernest 
Hollings, October 1, 1991, submitted for the record of the Consumer 
Subcommittee hearing on S. 640, September 19, 1991.
---------------------------------------------------------------------------
    The effect of product liability in promoting product safety 
relates not only to consumer protection, but to 
competitiveness. As Professor Mark Hager of American University 
testified:

        . . . our products, because of their superior 
        reputation for safety, due in part to the effects of 
        product liability over the last 20 years, have a 
        superior reputation in the international marketplace. . 
        . . [W]e cannot compete at this time with the low labor 
        costs of newly industrializing countries, but we can 
        compete very effectively . . . in safety, and it would 
        be a grave risk to our international competitiveness to 
        toy with the tort system that helps bring about that 
        competitive advantage.\41\
---------------------------------------------------------------------------
    \41\ Testimony of Professor Mark Hager, Assistant Professor of Law, 
Washington College of Law, American University, at Consumer 
Subcommittee Hearing on S. 1400, April 5, 1990, transcript at 126.
---------------------------------------------------------------------------

   VI. The Current System Promotes Important Principles of Federalism

    The value of the principles of federalism embodied in our 
current system of tort law should not be overlooked. As 
Congressman Mike Box, of the Alabama House of Representatives, 
has testified:

        [t]he issues of proper compensation for injured persons 
        and suitable protections for businesses are matters of 
        social values and public policy that should be 
        addressed at the state level, in the absence of a 
        national economic crisis. . . . Arguments for uniform 
        laws as a means of promoting competitiveness ignore the 
        advantages of a decentralized and federal system of 
        civil justice. . . . Remember why we developed as a 
        federal nation. . . . Our founding fathers recognized 
        the importance of having governments responsive to the 
        electorate. Broad powers were reserved to the states so 
        they would serve as bulwarks of freedom, an antidote to 
        an overpowerful national government. . . . . S. 1400 [a 
        similar bill introduced the 101st Congress] is radical 
        because it opens the door to substantially greater 
        federal intrusions.\42\

    \42\ Testimony of Rep. Mike Box, Alabama House of Representatives, 
at Consumer Subcommittee Hearing on S. 1400, April 5, 1990, Statement 
at 1-3.
---------------------------------------------------------------------------
    These concerns were reiterated during the Consumer 
Subcommittee's September 12, 1991 hearing by Delegate Bernard 
Cohen on behalf of the National Conference of State 
Legislatures. Delegate Cohen pointed out that federal 
``preemption should not occur unless it could be proved that 
the variation in State laws is significantly impeding commerce 
among the States and unless the specific legislative response 
is the only way to resolve the conflict. . . . [T]his burden 
has not been met with respect to product liability laws.'' 
Delegate Cohen went on to note that, not only had the burden of 
proof not been met, but ``the basic rationale for this bill, 
the underlying rationale for it, is fallacious.'' \43\
---------------------------------------------------------------------------
    \43\ Testimony of Delegate Bernard Cohen, Virginia House of 
Delegates, Consumer Subcommittee Hearing on S. 640, September 12, 1991, 
transcript at 85-86; 87.

    Professor Eisenberg from Cornell Law School also has raised 
these concerns, and pointed out the practical problem with 
---------------------------------------------------------------------------
federal tort law that I believe should provoke serious concern:

          The changing nature of products liability law makes 
        me cautious about wishing for Congress to implement a 
        single rule. For the rule Congress adopts had better be 
        a good one, since it may preempt further 
        experimentation and change by the states. I see no 
        basis for believing that the rules embodied in S. 1400 
        [a similar bill introduced in the 101st Congress] are 
        superior to the collection of rules embodied in various 
        state laws and to the ability of the states to adopt 
        the best rules of their sister states, as those rules 
        evolve over time. The one thing we do know is that 
        state product law does change. I worry that Congress 
        may freeze the law with the wrong set of rules at a 
        time when there is no clear reason to [do so].\44\
---------------------------------------------------------------------------
    \44\ Testimony of Professor Theodore Eisenberg, Professor of Law, 
Cornell University, in response to post hearing questions of Senator 
Rockefeller, from Consumer Subcommittee Hearing on S. 1400, April 5, 
1990, at 2.

    Testifying on behalf of the National Conference of State 
Legislatures at the Committee's April 4, 1995 hearing, 
Representative Jeffrey Teitz of the State of Rhode Island 
---------------------------------------------------------------------------
stated:

          This is a unique moment in our national history. For 
        the first time in decades, we have begun a serious re-
        examination of the relationship between Washington and 
        the fifty state capitals. Members of Congress on both 
        sides of the aisle are publicly acknowledging that the 
        federal government needs to return significant 
        governmental authority on a broad range of issues to 
        the states. There is a widely-shared recognition that 
        dictates from Washington have in many instances made 
        government neither more efficient nor more equitable. 
        Against this great historic trend comes the dubious 
        idea of product liability preemption. The proponents of 
        this legislation want Washington to dictate the legal 
        standards and evidentiary rules which the fifty state 
        court systems use to adjudicate disputes over allegedly 
        defective products. There is no precedent for such a 
        congressional imposition of federal rules by which 
        state courts will be forced to decide civil disputes. . 
        . . The issues of proper compensation for injured 
        persons and suitable protections for businesses are 
        matters of social values and public policy that should 
        be addressed at the state level. Only with clear proof 
        of the need and the effectiveness of national rather 
        than state solutions should we consider the sweeping 
        preemption of state laws and constitutions contemplated 
        by this legislation. In our view, proof of need and 
        effectiveness is lacking.\45\

    \45\ See Testimony of Jeffrey Teitz, Consumer Affairs, foreign 
Commerce and Tourism Subcommittee Hearing on S. 565 (April 4, 1995).
---------------------------------------------------------------------------
    Indeed, I have this same concern. I am constantly surprised 
that some are willing to take their chances with Congress 
setting the rules over the long haul. Such an effort would 
limit flexibility, and could eventually result in rules more 
oriented toward plaintiffs than those the states would craft. 
In any event, we only should tinker with the fundamental 
principles of federalism in the most extreme circumstances. A 
record such as we have on this issue is insufficient to take 
such action.

     VII. The Current System Did Not Cause The Insurance ``Crisis''

    In past years, the cry for product liability law has been 
based on a ``crisis'' in the availability and price of 
insurance. That argument has become non-existent, since 
virtually everyone agrees that insurance is now generally 
available and well-priced--we are in a ``soft'' market. Even 
before that occurred, however, it was clear that the product 
liability system did not cause and was not responsible for 
insurance availability problems.
    The primary allegations concerning the existence and 
magnitude of this crisis have proved vastly exaggerated. In 
1976, the Federal Government created a Federal Interagency Task 
Force on Product Liability (hereinafter the Task Force) to 
examine the problem. The Insurance Study commissioned by the 
Task Force found that, while insurance costs did increase in 
the mid-1970s, insurance premiums exceeded 1 percent of the 
total sales for only three industries.\46\ In an April 25, 1980 
letter to Senator Adlai Stevenson, Victor Schwartz, in his 
capacity as Chairman of the Commerce Department's Task Force on 
Product Liability and now one of the leading advocates of S. 
648, stated that ``no one has ever demonstrated that the huge 
increases in product liability premiums in recent years were 
related to the number and/or size of product liability 
claims.'' \47\
---------------------------------------------------------------------------
    \46\ U.S. Department of Commerce, Interagency Task Force on Product 
Liability, Final Report VI-20 (1977) [hereinafter cited as Task Force 
Final Report].
    \47\ Testimony of Victor Schwartz, Commerce Committee Hearing on S. 
1789, 96th Congress (April 22, 1980). Rand Corporation, The Institute 
for Civil Justice, ``Designing Safer Products: Corporate Responses to 
Product Liability Law and Regulation 121'' (1983) [hereinafter cited as 
Designing Safer Products].
---------------------------------------------------------------------------
    By 1983, evidence indicated that product liability 
insurance costs actually had stabilized or decreased, and that 
the insurance crisis had disappeared. A 1983 Institute for 
Civil Justice study concluded not only that reports of a 
product liability crisis in the mid-1970s were greatly 
exaggerated, but that even the perception of a crisis had 
receded because it had become evident that product liability 
claims had not imposed unreasonable costs on most 
manufacturers.\48\ Costs increased and availability decreased 
again in the mid-1980s.
---------------------------------------------------------------------------
    \48\ Rand Corporation, The Institute for Civil Justice, ``Designing 
Safer Products: Corporate Responses to Product Liability Law and 
Regulation 121'' (1983) [hereinafter cited as Designing Safer 
Products].
---------------------------------------------------------------------------
    Professors Henderson and Eisenberg noted, in their 1992 
study on civil filings, that their data showed little linkage 
between tort reform and declining insurance rates, and that one 
has to be skeptical of such linkage.\49\ According to 
Professors Henderson and Eisenberg, at the advent of the so-
called tort reform movement, reformers were concerned more 
about convincing the American public that there was a crisis 
and linking the alleged crisis to product liability, than about 
the reality of the crisis itself.\50\ The idea was to tie the 
product liability system to the crisis in a way that reshaped 
public opinion.\51\ Efforts were forcefully made to link the 
so-called crisis to basic American activities, such as Little 
League baseball and the Boy Scouts \52\--almost literally 
motherhood and apple pie. To quote Professors Henderson and 
Eisenberg, ``using every technique of modern media-shaping, 
tort reform groups sought to insure that the public believed 
that products liability law was the cause of this threat to 
their way of life.'' \53\
---------------------------------------------------------------------------
    \49\ Supra at 8, 792.
    \50\ Id. at 792-793.
    \51\ Id.
    \52\ Id.
    \53\ Id.
---------------------------------------------------------------------------
    During the mid-1980s, the Director of Government Affairs 
for the Risk and Insurance Management Society--an association 
of corporate risk managers which generally supports tort 
reform--himself expressed concern about linking tort reform and 
the insurance availability crisis.\54\
---------------------------------------------------------------------------
    \54\ Id.
---------------------------------------------------------------------------
    There is ample evidence that the increases in product 
liability insurance costs that did occur were actually the 
result of the cyclical nature of the insurance industry and 
insurance companies' underwriting practices, not the product 
liability system. The Congressional Research Service (CRS) has 
described the repeating cycles of high and low premiums as a 
historical alteration between soft and hard insurance markets, 
and has discussed the management practices of the companies 
which contribute to this cycle. In a soft market, rates are 
adequate, and risk selection careful, and the industry 
generally performs well. New capital is attracted from a number 
of sources and capacity increases. Price cutting of premiums 
results when new sources of capacity begin to generate 
increased competition for available premium volume. 
Underwriting standards (the standards for deciding whether to 
insure a particular manufacturer) for risk selection diminish 
with increased competition, and insurers take on riskier 
business endeavors. According to CRS, this practice results in 
rising claims losses.
    At the point that competition is severe and losses are too 
high, insurers withdraw from the market and the capacity 
shrinks, resulting in a hard market. Availability and 
affordability problems ensue as the remaining insurers raise 
prices and tighten the underwriting standards. Eventually the 
market stabilizes, a soft market emerges, and the cycle begins 
again.\55\
---------------------------------------------------------------------------
    \55\ See Congressional Research Service, ``Property-Casualty 
Insurance Market Operation'', CRS Report No. 85-629E (March 20, 1985).
---------------------------------------------------------------------------
    Interest rates, which reached historic heights in the late 
1970s, aggravated the cycle. Companies engaged in price wars in 
order to obtain a larger volume of premium income for 
investment.\56\ Basically, companies were willing to accept 
lower premiums for certain insurance lines in order to 
encourage sales and obtain funds for investments.\57\
---------------------------------------------------------------------------
    \56\ See ``A Rate War Rips Casualty Insurers,'' Business Week, 
December 8, 1980.
    \57\ Hearing on Product Liability before the Consumer Subcommittee, 
99th Cong. 2d. Sess. (1986) (hereafter cited as 1986 Product Liability 
Hearing). (Statement of Johnny C. Finch, Senior Associate Director, 
General Government Division General Account Office) (Testimony on file 
at Senate Committee on Commerce, Science, and Transportation).
---------------------------------------------------------------------------
    On February 19 and March 4, 1986, the Committee held 
hearings to conduct a more comprehensive examination of the 
availability and cost of liability insurance. Testimony was 
presented at hearings on the reasons for the insurance crisis. 
Witnesses noted that the insurance crisis had arisen during a 
period of falling interest rates, prior to which competing 
insurance companies had been underpricing their product in 
order to maximize cash flow and enhance investment income. When 
interest rates began to fall, companies were forced to increase 
premiums because investment income was no longer compensating 
for underwriting losses. The Committee Report accompanying S. 
2129, the Risk Retention Amendments of 1986, states that 
``[t]his practice of cash flow underwriting was linked directly 
to the current crisis.'' \58\
---------------------------------------------------------------------------
    \58\ S. Rep. No. 294, 99th Cong., 2nd Sess. 4 (1986).
---------------------------------------------------------------------------
    GAO testified in May 1986 before the Consumer Subcommittee 
that the underwriting cycle turned again and ``is now moving in 
a positive direction.'' The property/casualty industry will 
enjoy ``an expected net gain before taxes of more than $90 
billion over the years 1986-1990.`` \59\ According to the 
Insurance Information Institute, the insurance industry has 
been a very profitable industry over the past decade, even 
during the 1980s' insurance crisis. A compilation of the 
Institute's annual statistics shows that, between 1984 and 
1996, property/casualty companies had a net after-tax income of 
well over $100 billion, and an increase in surplus of $63 
billion to $236 billion.\60\ The strong capacity of the 
insurance market has been reflected in recent reports on 
liability premium rates. A report by the National Association 
of Insurance Commissioners (NAIC) shows that between 1989 and 
1993, there was a 26% decrease in product liability insurance 
premiums.\61\
---------------------------------------------------------------------------
    \59\ 1986 Hearing on Product Liability, supra note 25 (Statement of 
Johnny C. Finch, Senior Associate Director, General Government Division 
General Account Office) (Testimony on file at Senate Committee on 
Commerce, Science and Transportation).U.S. Congress, Office of 
Technology Assessment, ``Making Things Better: Competing in 
Manufacturing,'' OTA-ITE-443 (Washington, D.C.: U.S. Government 
Printing Office, February 1990).
    \60\ Insurance Information Institute Annual Statistics on Property/
Casualty Companies.
    \61\ NAIC Research Quarterly, Volume 1, Issue 1 (January 1995 at 
23).
---------------------------------------------------------------------------
    The strength of the insurance market also demonstrates that 
insurance is available for companies wishing to bring new 
products to the market.

VIII. Product Liability Is Not A Major Factor in The Competitiveness of 
                             U.S. Business

    The proponents also claim that product liability is 
inhibiting the ability of U.S. business to compete in world 
markets and to market innovative products. However, there is 
absolutely no evidence that product liability hinders the 
competitiveness of American businesses.
    A recent survey by the Risk and Insurance Management 
Society (RIMS), an organization comprised of the largest 
industrial corporations, revealed that liability insurance 
costs for most businesses are less than 1% of total revenues. 
The RIMS study is similar to earlier finding the Conference 
Board.\62\
---------------------------------------------------------------------------
    \62\ Risk and Insurance Management Society (RIMS) 1994 Cost of Risk 
Survey (See Executive Summary)
---------------------------------------------------------------------------
    In 1987, the Conference Board surveyed risk managers of 232 
major U.S. manufacturing, trade, and service corporations about 
the effect of product liability on their companies.\63\ Risk 
managers are the corporate employees that have the greatest 
corporate responsibility for addressing product liability 
issues--40 percent, as compared to a 6 percent responsibility 
by the Chief Executive Officers (CEOs).\64\ Two-thirds of the 
risk managers said that product liability contributed 1 percent 
or less to the final prices of their products. For another 11 
percent of the companies, the liability cost was only 2-3 
percent of the final price.\65\ Additionally, most of the 
companies surveyed said that the area in which product 
liability had most significantly altered management decision 
making was in the quality of the products themselves.\66\
---------------------------------------------------------------------------
    \63\ Weber, ``Product Liability: The Corporate Response,'' The 
Conference Board, Report No. 893 (1987).
    \64\ Id. at v.
    \65\ Id. at 13.
    \66\ Id. at 2.
---------------------------------------------------------------------------
    The GAO made similar findings in a 1988 report on the 
issue. GAO found that insurance costs represented a relatively 
small proportion of businesses' annual gross receipts--0.6 
percent for large businesses, and about 1 percent for small 
businesses.\67\
---------------------------------------------------------------------------
    \67\ U.S. General Accounting Office, ``Liability Insurance: Effects 
of Recent `Crisis' on Businesses and Other Organizations,'' GAO/HRD-88-
64 (July 1988).
---------------------------------------------------------------------------
    Additionally, the Institute for Civil Justice of the Rand 
Corporation concluded in 1983 that product liability costs in 
most cases were only a minute percentage of costs to business:
          It appears safe to conclude that for most large 
        manufacturing firms, product liability costs--including 
        the cost of defending litigation and certain product 
        liability prevention activities--probably amount to 
        much less than 1 percent of total sales revenue.\68\
---------------------------------------------------------------------------
    \68\ Designing Safer Products, supra, note 22 at 121.
---------------------------------------------------------------------------
    Also, the Rand Corporation has found that only a small 
percentage of U.S. manufacturers are even involved in product 
liability litigation. In 1986, only 0.9 percent of all 
manufacturing concerns in the United States were defendants in 
product liability litigation.\69\
---------------------------------------------------------------------------
    \69\ Dugworth, ``Product Liability and the Business Sector: 
Litigation Trends in Federal Courts,'' Rand Corporation, the Institute 
for Civil Justice, R-3668-ICJ (1988).
---------------------------------------------------------------------------
    A recent study by Robert Hunter, former Texas Insurance 
Commissioner, and currently Director of the Insurance Division 
of the Consumer Federation of America, found that product 
liability accounts for only 26 cents of each $100 of retail 
sales in the country.\70\
---------------------------------------------------------------------------
    \70\See testimony of Robert Hunter, Consumer Affairs, Foreign 
Commerce and Tourism Subcommittee Hearing on S. 565 (April 3, 1995).
---------------------------------------------------------------------------
  In its study of competitiveness, the Office of Technology 
Assessment (OTA) concluded that American manufacturing clearly 
is being challenged by competitors, particularly from Japan. 
However, the recommended policy options for government activity 
to address this challenge did not include federal product 
liability law. Rather, OTA listed the four most important steps 
that the United States could take to improve competitiveness: 
(1) lower the cost of capital; (2) improve the quality of human 
resources through education and quality of workforce; (3) 
improve the diffusion of manufacturing technology to small and 
medium-sized business; and (4) provide government funding of 
risky but promising long-term research and development.\71\
---------------------------------------------------------------------------
    \71\ Testimony of Dr. Julie Fox Gorte, Office of Technology 
Assessment, Consumer Subcommittee Hearing on S. 1400, April 5, 1990 at 
transcript pp. 61-2.
---------------------------------------------------------------------------
  Claims regarding the cost of the liability system to 
businesses have been based on unsupported claims. Such rhetoric 
was greatly espoused by the Council on Competitiveness, under 
the auspices of former Vice President Quayle. The Council 
claimed that the cost of the tort system was crippling U.S. 
business, using questionable factors to derive the total cost 
of the system. Upon scrutiny, these dollar amounts were 
completely without factual basis.
  Mr. Quayle asserted that the ``direct'' costs of the tort 
system are $80 billion per year, and that indirect costs were 
considerably higher. The ``authority'' cited for that figure 
was Forbes magazine, which in turn cited no authority. The 
figure can be located in only one other place I have been able 
to uncover--Peter Huber's book, ``Liability: The Legal 
Revolution and Its Consequences.'' However, as an analysis of 
this book for the Stanford Law Review points out, this number 
was simply lifted from a comment made by Robert Malott, 
Chairman of the Business Roundtable's product liability task 
force and CEO of the FMC Corporation, in the 1986 issue of 
Chief Executive magazine. Mr. Malott was quoted as saying, 
``insurance liability costs industry about $80 billion per 
year'' with no documentation for that remark.\72\ These 
``authorities'' speak for themselves about the extent to which 
we should rely on these estimates in deciding to overhaul the 
civil justice system.
---------------------------------------------------------------------------
    \72\ Hager, ``Civil Compensation and Its Discontents: A Response to 
Huber,'' 42 Stanford L. Rev. 539, 547-550 (January 1990).
---------------------------------------------------------------------------
  The only other discordant note in the general agreement that 
product liability has a very small impact on business comes 
from a 1988 Conference Board survey of 500 chief executive 
officers of corporations, 42 percent of whom stated that 
product liability had a major impact on them.\73\ Some 
components of the Conference Board apparently were dissatisfied 
with the results of their 1987 survey, cited above, which did 
not support their theory of product liability. So they decided 
to ask different people, in hopes of a different result. This 
is virtually the only piece of information cited by the 
supporters of this legislation for the proposition that product 
liability affects competitiveness.\74\
---------------------------------------------------------------------------
    \73\ McGuire, ``The Impact of Product Liability,'' The Conference 
Board, Report No. 908 (1988).
    \74\ See, e.g., Testimony of Wendell Wilkie, General Counsel, 
Department of Commerce, Consumer Subcommittee Hearing on S. 1400, 
February 22, 1990.
---------------------------------------------------------------------------
  However, as Professor Theodore Eisenberg of Cornell Law 
School has stated with respect to this survey, ``* * * the case 
for reducing defendant liability seemed rather weak. It 
depended in large part on a survey of CEOs in which they were 
asked whether products liability was a problem for their 
companies. The flaws in such a survey are so substantial and 
obvious that no self-respecting legislature should act on the 
basis of the results.'' \75\ I could not have said it better 
myself. We cannot responsibly move forward on this legislation 
based on a self-serving survey of corporate executives, 
particularly when it is contrary to all other data. The data 
demonstrate that the actual impact of product liability on 
businesses' bottom line is very small.
---------------------------------------------------------------------------
    \75\ Responses of Professor Theodore Eisenberg, Professor of Law, 
Cornell University, to post-hearing questions of Senator Rockefeller, 
April 10, 1990, response to question 1.
---------------------------------------------------------------------------
  What is truly troubling about this debate over 
competitiveness is not the effect of the tort system on 
business, but the total lack of reliable information on which 
this competitiveness claim is based. In 1991, the GAO released 
a study of the effects of product liability on competitiveness, 
and stated that it could find no acceptable methodology for 
relating product liability to competitiveness, and that 
businesses refuse to make available the information necessary 
to conduct such analysis.\76\
---------------------------------------------------------------------------
    \76\ GAO, ``Product Liability rates and Claims, HRD 91-108 (1991).
---------------------------------------------------------------------------
  It has been argued that product liability costs are much 
higher in the United States than in the countries of some of 
our foreign competitors. However, a direct comparison of the 
costs of the tort systems in various countries, without more, 
is not valid because it ignores other types of compensation 
systems available in other countries. For example, in the 
Netherlands several social insurance programs are available 
which may preempt the need for compensation through the 
litigation process--the ZW/Sick Statute; the ZFW/Sick Fund Law; 
the WAO/Workers Disability Act of 1967; the AAW/General Act on 
Disability of Work; and the AWBZ/General Act on Special Medical 
Costs. The ZW is funded by collecting 5 percent of employers' 
gross income and 1 percent of employees' gross income. An 
injured employee may receive up to 70 percent of earned wages 
for 1 year. AAW and WAO continue funding if further assistance 
is needed.\77\
---------------------------------------------------------------------------
    \77\ Mann and Rodrigues, ``The European Directive on Products 
Liability: The Promise of Progress?'' 18 Ga. J. Int'l & Comp. L. 391, 
416.
---------------------------------------------------------------------------
  Moreover, the tax burden on business in the various countries 
must be included in any calculus of the relative competitive 
status of business. Taxes on business are higher in virtually 
every advanced country than they are in the United States.\78\
---------------------------------------------------------------------------
    \78\ Testimony of John G. Wilkins, Director of Tax Policy for 
Economic Analysis, Coopers and Lybrand, before the House Committee on 
Ways and Means, hearing on factors affecting U.S. international 
competitiveness, July 18, 1991.
---------------------------------------------------------------------------
  Thus, while business' costs related directly to the tort 
system may be lower in other countries, the relevant comparison 
is between the overall cost of compensation, which is likely to 
be similar to that in the United States. The proof of the fact 
that U.S. laws do not unduly burden companies doing business 
here is that foreign businesses are increasingly trying to 
locate here. In fact, foreign businesses would not seek to 
locate here if the tort system were the crippling burden that 
has been suggested by the proponents of S. 648.
  It is clear that the facts do not support this contention 
that the current product liability system puts American 
businesses at a competitive disadvantage. Very recently, the 
National Association of Manufacturers issued a report boasting 
about the global competitiveness of U.S. manufacturers.\79\ The 
report showed that U.S. exports increased from over $150 
billion in 1986 to over $300 billion in 1991. If we are going 
to legislate to assist American business, we should do it in a 
way that will be effective, and S. 648 will not be.
---------------------------------------------------------------------------
    \79\ ``The Facts about Modern Manufacturing,'' the Manufacturing 
Institute (July 1992 at 3).
---------------------------------------------------------------------------

     IX. S. 648 Will Not Reduce Product Liability Costs for Business

  Even if we assume that product liability is a significant 
barrier to the ability of U.S. firms to compete in world 
markets, that barrier cannot be reduced by any legislation 
unless the legislation somehow reduces businesses' costs. As J. 
Robert Hunter, then President of the National Insurance 
Consumer Organization, testified, ``[m]ake no mistake about it, 
if insurance costs and availability are not improved, 
competitiveness is not affected.'' \80\
---------------------------------------------------------------------------
    \80\ Testimony of J. Robert Hunter, President, National Insurance 
Consumer Organization, Consumer Subcommittee hearings on S. 1400, April 
5, 1990, at 132.
---------------------------------------------------------------------------
  The Committee, in hearings over the last several years, has 
received virtually unequivocal testimony that enactment of 
bills such as S. 648 will not affect costs or insurance rates. 
The insurance industry testified before the Committee regarding 
a bill similar to S. 648 in no uncertain terms that ``. . . the 
bill is likely to have little or no beneficial impact on the 
frequency and severity of product liability claims. . . .[I]t 
is not likely to reduce insurance claim costs or improve the 
insurance market.'' \81\
---------------------------------------------------------------------------
    \81\ Testimony of Deborah T. Ballen, Vice President for Policy 
Development and Research, American Insurance Association, at Consumer 
Subcommittee Hearing on S. 1400, April 5, 1990, transcript p. 110.
---------------------------------------------------------------------------
  Indeed, that the bill will not have its purported effects 
becomes clear when its actual impact is reviewed. For example, 
it is claimed that the bill will provide additional uniformity 
in product liability law nationwide. However, the bill only 
selectively preempts state law, leaving much of state law in 
place to be interpreted with the new federal law. Additionally, 
it provides a federal rule of law to be interpreted by both the 
state and the federal courts, but it is questionable whether 
state courts can be bound by the decisions of federal courts 
other than the Supreme Court.
  As Professor Eisenberg testified,

          . . . for a period of time, at least, predictability 
        may be reduced rather than increased. Each state will 
        have to decide the scope of S. 1400's [a similar bill 
        introduced in the 101st Congress] preemption and its 
        relation to state tort law. The interaction between 
        state and federal law in tort will be made more rather 
        than less complex. . . . [U]niformity will not be 
        quickly, if ever, achieved. . . . [We] are at risk of 
        having not just 55 jurisdictions but an additional 
        dozen federal courts of appeals making products law. At 
        least before enactment of S. 1400 the [federal] courts 
        of appeals should have felt bound by state law. Until 
        the Supreme Court speaks, it is not clear that state 
        supreme courts would or should be bound by federal 
        interpretations of S. 1400 as it interacts with the 
        relevant state law.\82\
---------------------------------------------------------------------------
    \82\ Testimony of Professor Theodore Eisenberg, Cornell Law School, 
Responses to post-hearing questions of Senator Rockefeller at 3. See 
also Note, ``Authority in State Court of Lower Federal Court Decisions 
on National Law,'' 48 Columbia L.Rev. 943, 954 (1948); Stern and 
Grossman, Supreme Court Practice (5th ed. 1978) at 280; Testa v. Katt, 
330 U.S. 386 (1947).

    With respect to punitive damages, S. 648 provides a 
standard of proof for punitive damages that is more restrictive 
than that in many states. However, punitive damages are not a 
significant factor in product liability cases. As Professor 
Eisenberg has stated, ``[t]here is a widespread perception that 
punitive damages are awarded frequently and in great amounts. 
Yet every serious study of the area finds that punitive damage 
awards are relatively infrequent, that they usually are 
commensurate with the defendant's wrongdoing, and that they 
bear a substantial relationship to the size of the compensatory 
awards. . . . [P]unitive damages are awarded in not more than 
one percent of filed cases . . . .'' \83\ The 1989 GAO Report 
also looked at punitive damages, and found that, on the few 
occasions when they were awarded, their amount had a high 
correlation with the amount of compensatory damages.\84\
---------------------------------------------------------------------------
    \83\ Testimony of Professor Theodore Eisenberg, Responses to Post-
hearing questions of Senator Rockefeller supra, at 4-6 and authorities 
cited therein.
    \84\ 1989 GAO Report, supra, at 27.
---------------------------------------------------------------------------
  In fact, regardless of the scope of the product liability 
legislation enacted, the record indicates that it will be 
ineffective in reducing product liability insurance costs. For 
example, Florida passed very strong changes in its tort law in 
1986, and also required the insurance industry to make rate 
filings indicating the effect of the changes on its rates. The 
Florida law eliminated joint and several liability, limited 
non-economic damages to $450,000, and limited punitive damages. 
Nevertheless, when Aetna's rate filing came in, it listed the 
effect of each change on its rates as ``zero.'' \85\ There was 
no change in insurance costs, despite the dramatic changes in 
tort law, and we could expect none with enactment of S. 648.
---------------------------------------------------------------------------
    \85\ Testimony of J. Robert Hunter, supra. transcript at 135.
---------------------------------------------------------------------------
  No explanation has been offered, and none could logically be 
offered, for any way in which a bill could improve 
competitiveness if it does not reduce product liability claims 
or costs. When this is pointed out, the supporters of the bill 
often suggest that the bill may not reduce damages paid but 
will reduce ``transaction costs'', or the costs of litigation 
such as attorneys' fees. But it is obvious, that if transaction 
costs were reduced, they should be reflected in reduced 
insurance costs. However, experts have testified that insurance 
costs will not be reduced by this bill. The available evidence 
demonstrates that the bill will not reduce transaction costs, 
either.
  GAO has stated unequivocally:

        [w]e believe that S. 1400 [a similar bill introduced in 
        the 101st Congress] is unlikely to reduce transaction 
        costs in product liability suits. For cases that are 
        litigated, the procedural features of the tort system 
        would not be changed by the bill. It is also not clear 
        that the bill provides strong incentives for 
        alternative dispute resolution, which could cut 
        litigation costs. Moreover, the alternative dispute 
        resolution mechanisms that may be used are left to the 
        discretion of the states. If these mechanisms are not 
        binding, then they may add to rather than substitute 
        for litigation. If this happened, costs could actually 
        increase.

  GAO went on to note that transaction costs are largely a 
function of the length of litigation, and that delays caused by 
defendants are common. However, if a complete and accurate 
record is necessary to insure a fair outcome of the case, 
``lengthy litigation and its attendant costs might be 
justified.'' \86\
---------------------------------------------------------------------------
    \86\ Testimony of Joseph F. Delfico, Director, Income Security 
Issues, General Accounting Office, Consumer Subcommittee Hearing on S. 
1400, February 22, 1990 in response to post-hearing questions of 
Senator Bryan at 2.
---------------------------------------------------------------------------
  Another justification offered for federal product liability 
legislation in that legal fees paid to plaintiffs' attorneys 
are too high. However, this bill would not have any effect on 
attorneys' fees. In any event, it is important to understand 
the value of the current system of compensation for plaintiffs' 
attorneys. Plaintiffs' lawyers who accept product liability 
cases work on a contingency fee basis. If they win the case 
they get a percentage of the case (which is usually about 30 
percent); if they lose, they get nothing. This system allows 
injured plaintiffs who are not wealthy to obtain a lawyer. At 
the same time, the system acts as a deterrent to frivolous 
cases because attorneys are spending their own time and money 
in the case.
  Figures from the Institute for Civil Justice state that 
plaintiffs receive approximately one-half of the cost of 
litigation. Any problem with the cost of the system is not with 
the cost of the attorney who is ``investing'' his or her own 
time and money to win a case. The problem is with the defense 
attorney who has an incentive to delay the case with dilatory 
motions, and thereby encourage severely injured plaintiffs to 
settle for less in order to get an expedited payment of the 
plaintiff's medical and other costs. Meanwhile, the company is 
making interest on money that would otherwise be in the hands 
of the prevailing plaintiff.
  The evidence also shows that defendants' attorneys are 
apparently better paid, on average, than plaintiffs' attorneys. 
According to a recent report by the Consumer Federation of 
America, for every $1 paid to plaintiff's attorneys, at least 
$1.31 is paid to defense attorneys.\87\ Of course, defendants' 
attorneys are paid regardless of the outcome of the case, while 
plaintiffs' attorneys are paid only if they win their cases. 
Otherwise, they suffer a loss for the time and expenses they 
have incurred. Thus, existing transaction costs are not 
inappropriate, and in any event would not be reduced by this 
bill.
---------------------------------------------------------------------------
    \87\ Testimony of Robert Hunter, Consumer Affairs, foreign Commerce 
and Tourism Subcommittee Hearing on S.565 (April 3, 1995)
---------------------------------------------------------------------------

   X. The Product Liability System Does Not Stifle Innovation, but Can 
                    Encourage Innovations in Safety

  Another popular argument made in support of the bill is that 
the current system deters innovation, and discourages new 
products from being brought to market. Of course, this effect 
is, by its nature, somewhat subjective and very difficult to 
examine. However, witnesses at the Committee's hearings that 
examined the effects of the tort system on the chemical 
industry noted that desirable innovation must mean safe 
innovation, and that if the tort system discourages unsafe 
innovation, that is valuable. They also found that, even in the 
chemical industry, in which manufacturers pay a minuscule 
percentage of the costs of the injuries caused by their 
products, the tort system works to encourage the innovation of 
safer products.\88\
---------------------------------------------------------------------------
    \88\ Ashford and Stone, supra., at 415, 417.
---------------------------------------------------------------------------
  Proponents have placed a special emphasis on the impact the 
system is having on the drug and medical device industries. 
They claim the drug industry is burdened by the product 
liability system, and that many life-saving drugs and medical 
devices are being kept from the market because of litigation 
concerns. These claims, however, are inconsistent with the 
views of the drug companies themselves, and reports on the 
market performance of the U.S. pharmaceutical industry. 
Testifying before the House Judiciary Committee on August 12, 
1994, on behalf of the Pharmaceutical Research and 
Manufacturers of America (PHRMA), Gerald J. Mossinghoff, PHRMA 
President at that time, stated:

        the U.S. industry is the world leader in developing new 
        medicines. We are responsible for about one-half of all 
        new patented drugs that reached the global market since 
        1970. Private industry was the source of more than 92% 
        of the new chemical entities approved in the U.S. 
        during 1981-1990.

  A recent report by Fortune magazine rated the U.S. 
pharmaceutical industry the number one American industry with 
respect to competitiveness. These reports, as well as studies 
on the strength of the insurance market, make clear that the 
American drug industry is not being hampered by the product 
liability system.
    Business can, and often does, say it is discouraged from 
bringing innovative products to market, but it does not say 
what those products were, so the claim cannot be analyzed. 
However, those actual products that have been cited by 
witnesses in support of this claim subsequently had legitimate 
questions raised about their safety. In such cases, until such 
questions are resolved, I do not think we should presume that 
the product liability system has not worked properly to keep 
those products from the market.
    Some examples of products cited as unfairly kept from the 
market by the system are set out below, together with the facts 
as they developed through the Committee's hearing process.
    Monsanto Asbestos Substitute--Calcium sodium metaphosphate 
was cited by several supporters of S. 640 [a bill considered in 
the 102nd Congress] as a primary example of a safe product kept 
from the market by the product liability system. However, an 
Environmental Protection Agency (EPA) Status Report dated 
August 19, 1986, reviewed studies of this product submitted by 
Monsanto, and stated that ``EPA believes that the evidence 
obtained from Monsanto's . . . study in rats offers reasonable 
support for the conclusion that calcium sodium metaphosphate 
fibers can cause cancer.'' (Report p. 9). Dr. Philip Landrigan, 
Chairman, Department of Community Medicine, Mt. Sinai Medical 
Center, reviewed the EPA and Monsanto documents, and stated: 
``I am extremely concerned about the potential carcinogenicity 
of sodium calcium metaphosphate.'' \89\ Monsanto's CEO, Richard 
Mahoney, subsequently wrote to the Committee stating that later 
tests of the fiber showed no evidence of health problems, that 
the first test was not done to determine the health risk to 
humans, and that the product was kept off the market solely 
because of concerns about ``unwarranted litigation''.\90\ 
However, this letter does not explain why the first test would 
have been done if not to examine risks to human health.
---------------------------------------------------------------------------
    \89\ Report of Dr. Phillip Landrigan.
    \90\ Letter from Richard Mahoney to Senator Richard H. Bryan dated 
May 17, 1990, reprinted in record of Consumer Subcommittee Hearing on 
S. 1400, May 10, 1990.
---------------------------------------------------------------------------
    Copper 7 IUD--Supporters of S. 687 [a bill considered in 
the 103rd Congress] claimed that this product, although safe, 
was taken off the market because of unwarranted product 
liability suits. The Court in Kociemba v. Searle, 707 F. Supp. 
1517 (D. Minn. 1989), (settled w/out appeal), a Copper 7 case, 
stated that the plaintiff ``presented evidence which would have 
allowed a reasonable jury to conclude that defendant knowingly 
placed millions of American women, especially [women who have 
not had children], at risk of serious infection, loss of 
fertility, and surgery for removal of internal organs'' and 
that ``responsibility for this conduct was shared throughout 
defendant's corporate hierarchy, and that the conduct continued 
for over ten years.'' Michael Ciresi, the lawyer who litigated 
many Copper 7 cases for plaintiffs, has written to the 
Committee stating that his firm spent millions of dollars on 
discovery of documents that Searle resisted through litigation 
to the Supreme Court. Cases litigated before completion of that 
discovery were not successful because of the lack of 
documentation. According to Mr. Ciresi, the documents 
ultimately obtained demonstrated that the company knew the 
product was dangerous to women who have never had children, but 
continued to market the product to those women. That action was 
the basis for punitive damages against the company.\91\
---------------------------------------------------------------------------
    \91\ Statement of Michael Ciresi, submitted for record of Consumer 
Subcommittee Hearing on S. 1400, April 5, 1990.
---------------------------------------------------------------------------
    Sturm Ruger ``Old Model'' Single Action Revolver--This 
product was cited as one which was the victim of unreasonable 
verdicts based on injuries that were really due to plaintiff 
negligence. However, documents submitted at the Committee's May 
10, 1990 hearing demonstrated that since 1962 Ruger had 
received reports of serious injuries and deaths resulting from 
accidental discharges of this gun. In 1968, the gun failed a 
test for accidental discharge performed by the Bureau of 
Alcohol, Tobacco and Firearms, and it subsequently failed 
Ruger's own tests. Ruger did not redesign the gun to add a 
transfer bar safety device until 1973, and estimated that 
between 1968 and 1973 more than 150,000 ``old models'' were 
sold. Bill Ruger, CEO of the company, testified during product 
liability litigation that no safety device was put on the gun 
because a revolver ``is supposed to be designed in the 
traditional way.'' The Court in Sturm Ruger v. Day, 594 P.2d 38 
(Alaska 1979) found Ruger liable for punitive damages for 
failure to add a safety device. According to testimony before 
the Committee, by 1989 about 230 product liability claims had 
been filed against Ruger for this defect, but the gun has never 
been recalled.\92\
---------------------------------------------------------------------------
    \92\ Supplemental Statement of Linda Lipsen, submitted for record 
of Consumer Subcommittee Hearing on S. 1400, May 10, 1990.
---------------------------------------------------------------------------
    Puritan-Bennett Anesthesia Gas Machines--This was cited by 
some hearing witnesses as a product unjustly removed from the 
market by the product liability system. The machines were 
implicated in four deaths in 1983-84. Hearings in the House 
Subcommittee on Oversight and Investigations, September 24, 
1984, found that the company failed to notify the Food and Drug 
Administration (FDA) of deaths that were caused by an overdose 
of anesthesia due to swelling of ``O'' rings and resultant 
sticking of a valve. This problem was known in the 1970s, and 
reflected in an appendix to the 1979 voluntary standard for 
anesthesia machines. The FDA, testifying before the 
subcommittee in 1984, stated that the company ``appears . . . 
[to have] failed to conduct adequate design review of certain 
critical components'' including use of certain rubber-like 
materials in the presence of high concentrations of anesthetic 
gas. The company instituted a limited recall, and the FDA 
required the recall extended to all valves distributed through 
July 1984.\93\
---------------------------------------------------------------------------
    \93\ Supplemental statement of Linda Lipsen, supra, reprinted in 
record of Consumer Subcommittee Hearing on S. 1400, May 10, 1990.
---------------------------------------------------------------------------
    Ortho Contraceptives--Witnesses at the Committee's hearings 
claimed these products were unfairly subjected to product 
liability actions, citing Wooderson V. Ortho, 681 P.2d 1038, 
cert. denied 105 S.Ct. 365 (1984). It was claimed that, in that 
case, the company was held liable for failure to warn even 
though the FDA had determined that the warning was not 
necessary. However, an examination of the Court's decision 
reveals that the Court held that there was no clear 
determination by the FDA as to whether such a warning was 
necessary, so that the defense was not valid. Ortho was held 
liable by the Court for punitive damages because it ignored 
substantial evidence that its product caused renal failure.
    Taking all the evidence presented on both sides of these 
issues, I am not prepared to conclude that the current product 
liability system is not working properly to insure the safety 
of new products.

                     S. 648 IS SUBSTANTIVELY FLAWED

    As I stated in previous reports, this legislation 
dramatically revises our current legal system without any 
serious factual predicate for such a change. The purported 
intent of S. 648 is to create uniformity through federal 
preemption of state law. In reality, however, the bill provides 
for only selective, and in many instances, only one-way 
preemption. Moreover, the bill, for the most part, only 
preempts state law to the extent the law favors consumers. Laws 
that are considered favorable to defendants are preserved by 
the bill. The legislation also contains many inconsistencies 
and substantive legal problems. A few examples are set out 
below.

                    1. Section 108--Punitive Damages

    Section 108 of the bill is cited as ``Uniform Standards For 
Award of Punitive Damages.'' By including such standards, the 
bill's supporters are acknowledging that such damages are 
important in deterring outrageous and unacceptable behavior by 
manufacturers. However, by its terms, it applies to punitive 
damages only ``if otherwise permitted by applicable law . . . 
.'' Thus, in states which have, through state law, eliminated 
or limited punitive damages, this bill would not restore the 
availability of such damages. In some states, there would be no 
right to punitive damages; in other states they would be capped 
at a stated amount; and they would be available only if the 
burden of proof in this legislation is met. This clearly does 
not, and is not intended to, create uniformity in the law of 
punitive damages. If proponents truly wanted uniformity, and 
were serious about deterring egregious conduct, they, at a 
minimum, would restore punitive damages in the states that have 
limited them so that the law would be consistent nationwide. As 
Professor Lucinda Finley of the Buffalo School of Law stated in 
testimony before the Committee on April 4, 1995, ``to advance 
the goal of uniformity, punitive damages ought to be equally 
available to injured people without regard to what state they 
reside in.'' \94\
---------------------------------------------------------------------------
    \94\ See Testimony of Lucinda Finley, Consumer Affairs, Foreign 
Commerce and Tourism Subcommittee Hearing on S. 565 (April 4, 1995).
---------------------------------------------------------------------------

        A. Provision Discriminates in Favor of Wealthy Citizens

    Section 108 caps punitive damages at $250,000 or two times 
the claimant's economic and non-economic (pain and suffering) 
damages, whichever is greater. Because of the connection to 
economic losses, juries and courts will be permitted to grant 
higher punitive awards in cases involving wealthy citizens. The 
obvious message of this provision is that companies should be 
punished more for injuring wealthy persons.
    This standard will have the effect of permitting persons 
with higher economic losses (e.g., wages, business 
opportunities), to collect more in punitive damages than 
persons with lower economic losses. The implied message, of 
course, is that injuries to persons with higher incomes and 
salaries (i.e., wealthy citizens) should be punished more than 
harm caused to lower-wage earners (i.e., working-class citizens 
or women who are homemakers).

                  B. The Judge Usurps The Jury's Power

    A provision has been included to allow a judge to increase 
punitive damages, if the cap was determined to be inadequate. 
The provision would supposedly alleviate the effects of 
disparate treatment based on economic status. However, the 
Supreme Court has ruled that juries, not judges, are to retain 
the ultimate authority to determine damages.\95\
---------------------------------------------------------------------------
    \95\ Dimick v. Schiedt, 293 U.S. 474 (1935)
---------------------------------------------------------------------------
    It should be noted that the legislation does not permit the 
court to inform juries about the caps on punitives. Thus, when 
a jury deliberates on punitive damages, it is unaware that 
there is a cap. If the jury happens to render a punitive 
verdict that exceeds the cap, the judge is required to negate 
the amount in excess of the cap.
    At that point, the judge is permitted to hold a separate 
proceeding--independently of the jury--to consider increasing 
the punitive award beyond the cap. The judge can award any 
increase, as long as it does not exceed the amount initially 
granted by the jury. This does not make the legislation 
constitutional, however. At this stage in the process, the 
jury's verdict is merely used as a gauge, or measure, for the 
judge, acting independently of the jury. The reality is that 
the judge is given authority to increase punitive damages 
beyond the cap--authority that is not given to the jury. Unlike 
the judge, the jury can never, acting on its own, render a 
punitive verdict that exceeds the cap. Any amount of the jury's 
award that supersedes the cap is to be vitiated immediately by 
the judge.
    This mechanism is unconstitutional since it grants judges 
greater powers to determine damages than juries. Although in 
some instances a judge may reduce a jury's award, a judge is 
not to be given authority to determine damages that supersede 
the authority of the jury.
    This provision assuredly will be challenged by business 
lawyers as unconstitutional. The end result will be that the 
provision will be removed and the cap--in its discriminatory 
form--will remain.

              C. Punitive Damages Provision Is Bad Policy

    The proponents claim they have attempted to rectify the 
unfairness of the punitive damage provision by allowing judges 
to increase damages beyond the cap. However, such efforts have 
amounted to no more than a failed attempt to correct bad 
policy. The simple fact is that Congress should not pass a bill 
it admits is unfair, and then delegate responsibility to judges 
to correct the unfairness. Additionally, a judge is not 
permitted to determine damages based on whether the law is fair 
to working and lower income citizens. Such reasoning, on its 
face, is wholly unconstitutional.

                   2. Section 106--Statute of Repose

    Section 106 includes an 18-year statute of repose 
provision. The provision bars the right of an injured person to 
recover for damages for injuries caused by a product 18 years 
old or older. This provision in S. 648 includes a two-way 
preemptive provision. Proponents claim the inclusion of the 
two-way preemptive provision has made the bill more beneficial 
to consumers.

          A. Provision Expanded to Cover All Consumer Products

    What the bill's supporters failed to point out, however, is 
that the statute of repose proposals in previous bills were 
limited to workplace products. In S. 648, however, the 
provision has been expanded to apply to all consumer products. 
These products include: elevators, playground equipment, 
construction equipment, amusement parks, ski lifts, cargo 
airplanes, furnaces, hot water heaters, garage doors, and power 
tools.

      B. Abolishes Rights Consumers Currently Have In Over 30 States

  According to CRS, the bill would restrict the rights of 
citizens in over 30 states that do not have any limitations on 
their right to sue when injured by defective products.
  Of the approximately 17 states that have a statute of repose, 
15 include various exceptions for certain products, such as 
contraceptives or products that may have hidden defects. The 
bill would eliminate those exceptions.

      C. Shields Companies From Liability--Even If The Product Was 
              Consciously Manufactured Or Sold Defectively

  The legislation provides no exception from the 18-year 
statute of repose. The bill would shield sellers, lessors, and 
manufacturers from suit-even if the company knew the product 
was dangerous, intentionally manufactured the product 
defectively, or sold the product in the knowledge that it was 
defective.
  Additionally, the provision will have the effect of shielding 
from liability a significant number of products in use. Howard 
Fark, a member of the Board of Directors of the National 
Machine Tool Builders Association, testified at a hearing on S. 
1400 [legislation considered in the 101st Congress] that over 
50 percent of the claims filed against machine tool builders 
involve machines at least 25 years old. It is argued that, if 
machines are defective, the defects will show up before the 
expiration of an 18-year period, so that manufacturers 
typically should not be liable for such products after that 
time. I have no reason to dispute that. However, by the same 
token, there has been no demonstration that there could never 
be a defective 21-year-old product, or 26-year-old product for 
that matter. As long as that possibility exists, it is 
appropriate to leave the responsibility to decide who should be 
liable for harm from a product where it now exists in most 
states--with the jury and the court.

3. Section 110--Elimination of Joint Liability for Non-economic Damages

  Section 110 states that ``the liability of each defendant for 
non-economic damages shall be several only and shall not be 
joint.'' However, it does not restore the availability of full 
non-economic damages in states in which such damages have been 
capped at a certain amount. It does not restore joint and 
several liability for economic damages in states where such 
liability has been limited by state law. So, again, we will not 
have uniform nationwide law on joint and several liability. We 
will have some states that have no joint and several liability, 
some that have joint and several liability only in certain 
circumstances, and some that follow the rule of S. 648.
  Data supplied by the Insurance Services Office (ISO) also 
shows that claims by the bill's supporters that businesses are 
paying more than their share of damages are unfounded. 
According to a recent ISO study, 77% of insured persons 
involved in mutiple-party claims paid a percentage of the total 
pay-out equal to their relative fault.\96\
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    \96\ See Insurance Services Office (ISO) Issues Series, ``Closed 
Claim Survey for Commercial General Liability: Survey Results, 1991.''
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                               CONCLUSION

  I regret that the Committee has once again proceeded to 
report legislation to federalize product liability tort law 
without any comprehensive data to demonstrate (1) that the 
legislation is necessary, and (2) that the legislation will 
work. The evidence is clear that this legislation will not have 
its purported effect of making the civil justice system more 
efficient or enhancing the competitiveness of American 
businesses. Our nation's civil justice system is one of the 
most admired systems of justice in the world. It should be 
cherished and preserved, not tinkered with, or modified in the 
interest of singularly self-interested groups.
  I believe that, before the Congress delves into this area, it 
should seek the guidance of the majority of state legislatures 
and judges, who have handled such matters for over 200 years, 
as well as legal experts. I did so, and they gave a resounding 
``no'' to this legislation. We would do well to listen to them.

                        Changes in Existing Law

  In compliance with paragraph 12 of rule XXVI of the Standing 
Rules of the Senate, the Committee states that the bill as 
reported would make no change to existing law.